The U.S. Foreign-Trade Zones Program: Economic Benefits to ... · Duty savings. Zone users can...
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TheU.S.Foreign-TradeZonesProgram:EconomicBenefitstoAmericanCommunities
Preparedforthe
NationalAssociationofForeign-TradeZones
By
The Trade Partnership
February2019
AboutTheTradePartnership
TheTradePartnershipisaWashington,DC-basedtraderesearchfirmwhoseteamofinternationaleconomistshavebeenprovidingsince1991high-qualityeconomicandtradepolicyanalysistoimprovecorporate,industryornationalcompetitivenessthroughtrade.TheTradePartnershipprovidessubstantivesupporttocorporations,tradeassociations,governmentsandothersevaluatingtheeconomiceffectsofengagementintradeonindustries,economiesandworkers.Itundertakesresearchandanalysisthathelpspolicymakersunderstandthebenefitstolocaleconomiesandworkersofliberalizingbarrierstotrade,includingtechnicalandothernon-tariffbarriers.
Accesstothefirms’researchandbriefbiosaswellasdetailedresumesofitskeystaffcanbefoundatwww.tradepartnership.com.Forquestionsaboutthisresearch,contact:
LauraM.BaughmanPresidentTheTradePartnership1701KStreet,NW,Suite575Washington,[email protected]
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TheStudy’sSponsorsTheNAFTZwouldliketothankandrecognizethefollowingsponsorswhosegeneroussupporthelpedmakethisreportpossible:America’sCentralPort[Illinois](FTZ#31)CityofLubbock[Texas](FTZ#260)CityofNewYork(FTZ#1)CityofSpringfieldAirportBoard[Missouri](FTZ#225)CODEZOLC.D.[PuertoRico](FTZ#163)ColumbusRegionalAirportAuthority[Ohio](FTZ#138)Ernst&YoungGlobalTradeGeodisUSA,Inc.GreaterCincinnatiForeignTradeZone,Inc./NorthernKentuckyForeignTradeZone,Inc.
[Ohio/Kentucky](FTZ#46/#47)GreaterDetroitForeign-TradeZone,Inc.[Michigan](FTZ#70)GreaterKansasCityForeign-TradeZone,Inc.[Kansas/Missouri](FTZ#15/#17)GreaterMetropolitanAreaFTZCommission[Minnesota](FTZ#119)IndigoTradeSolutionsLLCIntegrationPoint,Inc.JeffersonCountyEconomicDevelopment[NewYork](FTZ#109)KCSmartPortLamb&LerchLawOfficeofLewisE.LeibowitzMiller&CompanyPCNissanNorthAmerica,Inc.PageFuraPCPointTradeServices,Inc.(PTSI)PortAuthorityofNewYork/NewJersey(FTZ#49)PortofCorpusChristiAuthority[Texas](FTZ#122)PortHoustonAuthority[Texas](FTZ#84)PortofLongBeach[California](FTZ#50)PortofSouthLouisiana(FTZ#124)PortTampaBay[Florida](FTZ#79)RockefellerGroupSanAntonioEconomicDevelopmentCorporation[Texas](FTZ#80)StateofDelaware(FTZ#99)UPSTradeManagementServices,Inc.ValeroServices,Inc.VirginiaPortAuthority(FTZ#20)
TheU.S.Foreign-TradeZonesProgram:EconomicBenefitstoAmericanCommunities
ExecutivesummaryForeign-tradezones(FTZsorzones)providetariffsavingsandotherbenefitstocompaniesthatengageinimportandexportoperationsintheUnitedStates.ThesebenefitswereprovidedbyCongressbeginningin1934toencourageU.S.economicactivityinmanufacturinganddistribution,andemploymentthatmightotherwisebeperformedabroad.EconomicanalysisoftheeffectsofFTZsislimited,particularlytheimpactofFTZsoneconomicactivityandjobsinlocalitieswithoperationalzones.Toremedythisdeficiency,theNationalAssociationofForeignTradeZonescommissionedthisstudytoinformpolicymakersandthepublic,andtoprovideananalytictoolforeconomicdevelopmentinstitutions.Thisstudymeasures,bothquantitativelyandqualitatively,theeconomiceffectsofFTZsonthecommunitiesinwhichthezonesoperate,whichwerefertoasZoneEconomicCommunities(ZECs).WeexaminetheeconomicimpactsofFTZsonZECsusinganeconometricapproachthatenablesustoattributechangesincommunityemployment,wages,andvalueadded1totheoperationofazone.Specifically,weexaminethechangesinthesethreeeconomicmeasuresineachof251ZECscomparedtoanotherwisesimilareconomiccommunityinthesameregionthatdidnothaveanFTZ.WesupplementtheeconometricanalysisbyprofilingavarietyoffirmsthatuseFTZsanddescribethespecificwaysinwhichtheprogram’sbenefitshaveaffectedcompanyandcommunityemploymentandothereconomicactivity,including,theefficientallocationofcompanyresources,domesticproduction,andexports.Thestudymakesthefollowingfindingssupportedbythedatacollectedfor251ZECs:• Employment,wages,andvalueaddedexhibitanincreaseinthebroaderzone
communityfollowingtheestablishmentofanFTZ.Thosegainsarethegreatestintheearlyyearsforemploymentandwages,andthroughouttheperiodforvalueadded.ThisincreasedeconomicactivityisalsovisibleinadvanceoftheformationoftheFTZ.
• TheestablishmentofanFTZcausesapositiveincreaseinemploymentgrowthin
thesurroundingZEC(up0.2percentagepoints),wagegrowth(up0.4percentagepoints),andvalueaddedgrowth(up0.3percentagepoints)intheZEC,typically
1 “Valueadded”referstothedifferencebetweengrossoutputandintermediateinputsandrepresentsthevalueoflaborandcapitalusedinproducinggrossoutput.
2
0.140.17
0.19
0.290.32
0.340.31
0.33
0.37
year8 year9 year10
Employment Wages Valueadded
0.140.18
0.20
0.25 0.25
0.290.33
0.35
0.280.32
0.340.36
0.41
year6 year7 year8 year9 year10
Employment Wages Valueadded
eightyearsandlater,afterestablishmentoftheFTZ.Theimpactsbeginsooner,inyearssixandlater,forwagesandvalueaddedinsmall-andmediumsizedZECs.
• CompanyaccesstoFTZbenefitshassubstantialrippleeffectsthroughthecompany’ssupplychain,muchofwhichistypicallylocatednearby(BMWManufacturinginSouthCarolina,ExxonMobilCorporationinLouisiana,YamahaMotorManufacturingCorporationinGeorgia,areimportantexamplesofthiseffect).FTZbenefitsensurethatdirectandindirectjobsremainintheUnitedStates(e.g.,HellyHansen)despiteconsiderableeconomicpressurestorelocateoperationstocountriesoutsidetheUnitedStates.FTZbenefitssupporthigh-valueU.S.R&D(e.g.,LamResearchCorporation).FTZbenefitshavebroughtproductionjobsbacktotheUnitedStates(e.g.,ProdecoTechnologies,andPiramalCriticalCare).FTZsavingshaveenabledcompaniestodirectcompanyresourcestotheirmostefficientuses,suchasworkertraining(e.g.,UniCarriersAmericas).
FTZeffectsongrowthinZECemployment,wages,andvalue-addedsix-tenyearsaftercommencementofzoneoperations(inpercentagepoints)
a.AllZECs,onaverageb.Small-andmedium-sizedZECs,onaverage
TheU.S.Foreign-TradeZonesProgram:EconomicBenefitstoAmericanCommunities
TableofContents
ExecutiveSummary
I. Introduction......................................................................................................... 1II. DoFTZsbenefittheU.S.economyandworkers?............................................... 4
A. Dataissues..................................................................................................... 4B. Relatedresearch............................................................................................ 5
III. Ourapproach....................................................................................................... 7A. Econometrics................................................................................................. 7B. Companyprofiles........................................................................................... 10
IV. Conclusion............................................................................................................ 13V. References........................................................................................................... 14AppendixA:Econometricanalysis............................................................................. 15A. Data..................................................................................................................... 15B. Econometricapproaches..................................................................................... 18C. Summaryofeconometricresults......................................................................... 44AppendixB:CompanyuseofFTZs............................................................................. 47 BMWManufacturing,Spartanburg,SouthCarolina(FTZ-38)............................. 48 ExxonMobilCorporation,BatonRouge,Louisiana(FTZ-154)............................. 51 YamahaMotorManufacturingCorporationofAmerica,
Newnan,Georgia(FTZ-26)............................................................................ 53 HellyHansenU.S.Inc.,Tacoma,Washington(FTZ-86)........................................ 55 LamResearchCorporation,SanJose,California(FTZ-18)and
Portland,Oregon(FTZ-45)............................................................................. 57 ProdecoTechnologies,LLC,OaklandPark,FL(FTZ-25)....................................... 58 PiramalCriticalCare,Inc.,Bethlehem,PA(FTZ-272).......................................... 59
UniCarriersAmericas,Rockford,Illinois(FTZ-176).............................................. 61
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TheU.S.Foreign-TradeZonesProgram:EconomicBenefitstoAmericanCommunities
I. Introduction
Foreign-tradezones(FTZsorzones)arerestricted-accessareaswithintheUnitedStatesthattheU.S.governmentdesignatesasbeingoutsidethecustomsterritoryoftheUnitedStatesforpurposesofdutycollectionandcustomsprocessing.2Assuch,U.S.CustomsandBorderProtection(CBP)doesnotcollectU.S.tariffsonproductsimportedandadmittedintoFTZs.ThepurposeofthezonesistocreateandmaintainU.S.employment“throughtheencouragementofoperationsintheUnitedStateswhich,forcustomsreasons,mightotherwisehavebeencarriedonabroad.”3
Theprogramisdesignedtoaccomplishthisgoal,forexample,byloweringthecostsofimportedinputstoU.S.productiononwhichtariffswouldotherwisebeassessedifproductiontookplaceintheUnitedStatesoutsidethezone,wheretheimportedinputswouldbesubjecttoU.S.duties.4ItfurthermakesU.S.productionmorecompetitivewithimportedgoodsthatthatmaybesubjecttoU.S.dutiesthatarelowerthanthoseapplicabletotheinputs.ItseekstopromoteU.S.productiondestinedforexportbynotcollectingtariffsoninputsusedtoproducegoodsthatarelaterexported.FTZsarealsodesignedtobenefitcertainnon-productionactivitiesandtheU.S.jobsassociatedwiththem(e.g.,storageandexhibition).
ThesavingsassociatedwithusingFTZsderivefromarangeofbenefits(seeBoxforasummarylist),includinglowerdutyandotherimportcostsavings,cashflowsavingsfromdutydeferral,dutyexemptiononexports,andstateandlocaltaxsavings.Therearestart-upandmaintenancecostsassociatedwithoperatinginanFTZ,however.Thosecostsinclude,butarenotlimitedto,adetailedapplicationprocessandtherequirementforCBPtoconductbackgroundchecksonimportersandFTZoperators,aphysicalsecuritysystem,aninventorycontrolsystemthattracksthemovementofproducts,at
2 Therearetwoforeigntradezonetypes.A“generalpurposezone,”whichcanbeusedbymorethanonebusiness,isthearea(e.g.,anindustrialparkorsea/airport)within60statutemilesora90-minutedrivefromtheouterlimitsofacustomsportofentry.A“subzone”isalocationoperatedbyonlyonebusiness.Asubzonecanbelocatedoutsidethestatutemile/drivingtimelimitforthegeneral-purposezoneaslongasCBPcanadequatelyoverseeitsactivities.3 U.S.Foreign-TradeZonesBoard,“FTZRegulations,”15CFRPart400,“Preamble,”“Summary,”2012,https://enforcement.trade.gov/ftzpage/grantee/preamble.html#sum.(emphasisadded)4 Thisisparticularlyusefulininstanceswherethetariffontheinputishigherthanthetariffonthefinishedproductinwhichitisincorporated(an“invertedtariff”situation).Theproducercandecidewhichtariffrateitpreferstopay(presumably,thelowerone).Ineithercase,U.S.valueaddedandotherdomesticinputsarenotincludedinthedutiablevalueofthefinishedproductthatlavesthezone.
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leastonefull-timepersontomanagethezone,andannualfeestothezonegranteeformanagingthezone.
AlthoughCongressfirstestablishedtheFTZprogrammanydecadesagowiththeForeign-TradeZonesActof1934,theFTZprogram’sbenefitsdidnotbecomeadrawforcompaniesuntilseveralsignificantchangesweremadetoit.Ina1950amendmenttotheAct,Congresspermittedmanufacturinginzones.Laterinthe1950s,theFTZBoardallowedFTZsitestobedesignatedatacompany’sfacility(referredtoasa“subzone”).Intheearly1980s,theU.S.TreasuryDepartmentclarifiedthatvalue-addedordomesticinputswerenotaddedtodutiablevalueforentriesofmerchandisefromzonesintoU.S.commerce.5TheseprogramchangesoccurredwhileintegrationoftheU.S.economyintoglobalsupplychainsandinternationalcompetitionwereintensifying,andasglobal
5 Bolle,M.,andW.Brock,“U.S.Foreign-TradeZones:BackgroundandIssuesforCongress,”CongressionalResearchService.November12,2013,p.6,https://fas.org/sgp/crs/misc/R42686.pdf.
IncentivestoUseFTZs
Dutysavings.ZoneuserscanreducehighernormalCustomsimportdutiesoninputs,payingthelowerdutyrateapplicabletothefinishedproductgoodsintowhichinputsareincorporated(thisdutymayevenbezero)whenthefinishedgoodisenteredintoU.S.commerce.Similarly,nodutyispaidonimportsthatarelaterexported,orarescrappedordestroyedinthezone.
Cashflowsavings.CustomsdutiesarepaidonlywhenandifthegoodsexitthezoneforentryintotheU.S.customsterritoryforconsumption.Whilethegoodsareinstorage(thereisnotimelimitforhowlongimportedmerchandisecanremainintheFTZ)companiescan,forexample,inspectthemandonlylaterenterthosethatpassinspection.Thisbenefitisofparticularvaluetoretailers,tocompanieswithhighercapitalcosts,andtothosewhoimportgoodssubjecttoquotas.
Taxsavings.Goodsstoredinzonesandgoodsexportedaresubjecttoafederalpreemptionfromstateandlocaladvalorempersonalproperty(i.e.,inventory)taxes,and,insomecases,qualifyforstate-specifictaxreductions.Suchbenefitsaregeographicallylimited.
Efficiencysavings.Individualimportentriescanbe“bundled”togetherandfiledasasingleentryweeklyentryresultinginacapofMerchandiseProcessingFees(MPF)at$508perweeklyentry(ratherthanat0.3464percentofthevalueofeachentry,uptoacapof$508perentry),savingnotonlyMPFcostsbutalsotimeandpaperworkcosts.Harbormaintenancefee(HMF)paymentscansimilarlybebundledandpaidquarterly,ratherthanonaper-shipmentbasis,reducingadministrativecosts.
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manufacturerssoughttoreduceproductioncosts.Overtheyears,FTZuseincreasedsharply,from10general-purposezonesin1970to191in2017(themostrecentyearforwhichdataareavailable).Thenumberofsubzoneshasgrownfromthreeto329overthisperiod.
Asnotedabove,thepurposeoftheU.S.FTZprogramistoprovidetariffandothercostsavingbenefitsthatincentivizeU.S.basedeconomicactivityandrelatedemploymentthatmightotherwisebeperformedabroad.WhiletheconnectionbetweenFTZuseandeconomicbenefitsiswidelyassumed,analysisoftheeconomiceffectsofU.S.FTZshasbeenlimited.Aswedetaillaterinthispaper,gooddatausefulformeasuringtheimpactsofFTZsarelacking.MostresearchconductedthusfarhasexaminedthedegreetowhichtheexistenceofanFTZdrawsforeigndirectinvestmenttoageographicarea.A2017assessmentoftheU.S.FTZprogrambytheU.S.GovernmentAccountabilityOffice(GAO)foundthatresearchconductedtodateshowedthatFTZsareconnectedwithpositiveeconomicactivity;however,GAOquestionedwhetherthedatasupportedtheconclusionthattheeconomicactivitywouldnothaveoccurredbutfortheFTZ.
ThisstudyseekstoaddressthisgapinassessingtheeconomicandemploymentimpactsoftheU.S.FTZprogramonthezoneandsurroundingcommunitiesinwhichtheyareestablished.Wemeasure,bothquantitativelyandqualitatively,themagnitudeofthesebenefitstolocaleconomies,whichwerefertohereasZoneEconomicCommunities(ZECs).WeexaminetheeconomicimpactsofFTZsonZECsusinganeconometricapproachthatenablesustoidentifyandmeasurechangesineconomicactivityattributedtotheFTZ.OurresultssuggestthatFTZshavepositivelyaffectedU.S.employment,wagesandvalueaddedinZECs.6
WesupplementtheeconometricanalysisbyprofilingavarietyoffirmsusingFTZs.Theseprofilesindicatethattheeconomicactivitiesinthezoneshavehadpositivedirectimpactsonthezoneareaandrippleeffectstobroadergeographicregions.TheprofilesindicatethatFTZshavecontributedtoincreasedU.S.exports,andhavedemonstrablykepteconomicactivityandrelatedjobsintheUnitedStatesthatmighthavebeenmovedabroadhaditnotbeenforthebenefitsaffordedbythezones.TheprofilesalsoshowthatFTZshavefreedupfundsandhaveenabledamoreefficientallocationofresources.Forinstance,fundsthatwouldhavebeenpaidondutiesandrelatedadministrativeburdenscaninsteadfacilitateenhancedworkertrainingandresearchanddevelopment.
6 WhileitispossiblethatFTZbenefitsmaydrawsomeeconomicresourcestoaZECawayfromaneighboringeconomiccommunity,ourZECareasaresufficientlylargethatsuchdiversionofresourceswouldbelimited.Giventhisdistance,therelocationcostsarenottrivial.Moreover,thegrowthineconomicgainsinZECsrepresentsareallocationofresourcestomoreproductiveuses,whichisbeneficialtotheeconomyasawhole.
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II. DoFTZsbenefittheU.S.economyandworkers?
U.S.FTZsarelocatedacrosstheUnitedStatesandallstatesplusPuertoRicohaveatleastonezone.In2017191generalpurposeand329productionzoneswereactive.7In2017,$241.5billioninimportswereadmittedintoFTZs,or10.3percentoftotalU.S.imports.Zonesdirectlyemployedover450,000workersin2017,up65percentsince1993(theearliestyearforwhichemploymentdataarereported(byfiscalyear)bytheForeign-TradeZoneBoard).8ThenumberoffirmsusingFTZsreached3,200in2017,comparedto2,820in1991.Mostzoneactivityandemploymentaredrivenbyactualproductionactivity.Theleadingproductsthatareimportedintozonesforproductionactivitiesareoil/petroleum,motorvehicleparts,consumerelectronics,pharmaceuticalsandmachineryandequipment.Leadingcategoriesofimportsdestinedfornon-productionactivity(warehouse/distributionactivities)arevehicles,consumerelectronics,consumerproducts,electricalmachinery,andoil/petroleum.
A. Dataissues
Withover10percentofgeneralimports,approximately3,200firmsandover450,000jobs,FTZsclearlyaccountformeaningfuleconomicactivityandemployment.However,othercurrentU.S.datathatwouldbeneededtofullyunderstandthebroadereconomicandemploymentimpactsoftheU.S.FTZprogramhavebeenlackingor,iftheywereavailable,areunusableforeventhemostbasicofassessmentsoftheeconomicactivityinzones.Asalreadynoted(footnote6),time-trendanalysisusinghistoricaldataintheBoard’sannualreportssuffersfromashiftfromfiscalyearstocalendaryearsin2011.Also,theFTZBoardreportsdonotdistinguishbetweenproductionwithimportedbutduty-paidinputsandinputsthatareproduceddomestically.Botharetermed“domesticstatus”merchandiseinFTZadministration,complicatingeconomicimpactanalyses.9Further,asdirectexportdatareportedbytheBoardrepresentsonlythevalueofthematerialinputsandnotthevalueaddedbyU.S.workersandcompanies,10itisnotequivalenttootherpublishedU.S.directexportdataandcannotbecomparedtoit.
OtherdatacollectedbytheBoardthatwouldbeusefulforthistypeofanalysisarenotpubliclyavailable.StatedatareportedintheBoard’sannualreports,forexample,are7 DatainthissectioncomefromthemostrecentFTZannualreportissuedbytheU.S.government,U.S.DepartmentofCommerceandU.S.TreasuryDepartment,Foreign-TradeZonesBoard,79thAnnualReportoftheForeign-TradeZonesBoardtotheCongressoftheUnitedStates,November2018,https://enforcement.trade.gov/ftzpage/annualreport/ar-2017.pdf.8 Itshouldalsobenotedthatdatafor1991reflectsafiscalyear;datafor2017,acalendaryear.TheBoardswitchedfromfiscalyearreportingtocalendaryearreportingin2011.9 SeenotestoFigure1:MerchandiseReceived,Foreign-TradeZonesBoard,op.cit.10 SeenotestoSummaryStatistics,2013-2017,Ibid.
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reportedasarangeofvalues.ReportssubmittedbyFTZcompaniesthatareusedtoaggregatedatafortheoverallprogramarealsonotavailabletothepublic.
Inaddition,datathatwouldmeasuretheimpactsoftheFTZsonindividualcompaniesoperatinginthezonesarenotcollected.Thiswouldinclude,forexample,theimpactsofdutysavingsfromzoneuse.Datameasuringvalueaddedinthezones,byproduct,isimperativetoanassessmentoftheeconomiceffectsofthezonesandthecorrespondingsupplychains;however,suchdataarealsonotavailable.
ThesignificantgapsintheavailabledatamakeathoroughassessmentoftheimpactofFTZsontheU.S.economyandspecificcompaniesdifficultandspeculative.ThisstudyattemptsexaminethoseimpactsusingcomparativetechniquesthathavenotpreviouslybeenappliedtoFTZs.
B. Relatedresearch
Giventheinadequacyofdata,itisnotsurprisingthatlittleresearchexistsquantifyingtheeconomicandemploymentimpactsoftheFTZprogram.ThisvoidwasnotedbyareviewoftheU.S.FTZprogrambytheGovernmentAccountabilityOffice(GAO2017).AccordingtotheGAO,“OurliteraturereviewuncoveredfewacademicstudiesregardingFTZs.ThestudiesthatwerevieweddidnotestimatetheoveralleconomicimpactofFTZsontheUnitedStatesorlocaleconomies.Severalacademicstudieswereviewedusedatheoreticalframework,explainingwhyitwasprofitableforcompaniestouseanFTZ,buttheassertionswerenotcorroboratedwithempiricalanalysisoftheeffectontheeconomy.”
ThefewexistingstudiesthatexaminetheeffectsofFTZscombinetheestablishmentofanFTZwithothereconomicandtaxpolicies,andsotheeffectsofFTZsonbusinessactivitycanbehardtodisentanglefromotherpolicies.Forinstance,Head,Ries,andSwenson(1999)examinedtheeffectsofpoliciesonattractingforeigndirectinvestment(FDI).TheyfoundthatasetofU.S.statepromotionefforts,whichincludedforeign-tradezones,taxincentives,andemployment-relatedhadastatisticallysignificanteffectonthelocationofJapaneseinvestmentintheU.S.between1980and1992.
BobonisandShatz(2007)examinedtheeffectsofcertainstatepoliciesaimedtoattractFDItothestate,includinglaborandcapitalsubsidies,varioustaxincentives,andforeign-tradezones.Ingeneral,theirresultsshowedthatthesepoliciesexhibitlittleinfluenceoverthelocationofFDIwithintheUnitedStates.11
OneusefulstudybyGhoshetal(2016)investigatedthedegreetowhichthecreationandexpansionofFTZscancreatejobsandattractotherbusinessinotherindustries
11 Tiefenbrun(2013)providesacomprehensiveanddetailedtreatmentofthetaxandeconomicbenefitsthatFTZsprovidetofirmsintheUnitedStatesandaroundtheworld,althoughdoesnotincludeempiricaleconomicanalysis.
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(“spillovereffects”).TheyfocusonhowFTZsmayaffectnearbynon-manufacturingestablishments(namelyserviceestablishmentssuchasgasstations,smallretailstores,oraccountingoffices)thatareotherwisenotdirectlyaffectedbyFTZsites.Theyusezip-codeleveldataonbusinessactivitytocomparehownon-manufacturingbusinessactivityinzipcodesthatreceiveFTZstatuschangesrelativetoasetofcomparablezipcodesthatdonotreceiveanFTZsite.Theresearchersfounda1.0percentlong-termincreaseinthegrowthrateofnewnon-manufacturingestablishmentsintheFTZzipcodesandasimilarlonger-termincreaseinthegrowthrateinborderingzipcodes.Thespillovereffectsarestrongestwithinafive-mileradiusofanFTZ.Thisisausefulstudybutbylimitingtheanalysistonon-manufacturingactivityinafive-mileradius,theauthorsareessentiallycapturinglocalservicessuchasgasstations,retail,andwarehousing.Theirapproachdoesnotcaptureotherkeyservicessuchasprofessionalbusinessandtechnicalservicesthatoriginateoutsidethefive-mileradius.
OurreportaimstohelpfillthegapintheresearchliteraturebyisolatingtheeffectsoftheestablishmentoftheFTZonlocalcommunitiesandcastingawide-enoughnettocapturealllocaleconomicactivity,productionaswellasnon-production(services).OurresultssupportfindingsbyMinandLambert(2010)thatfirmsintheFTZoftensourcefromotherlocalmanufacturers(andserviceproviders).
Thisresearchaddressestwocentralquestions:
(1) Towhatdegree,ifany,doestheFTZprogramsupporteconomicactivityandemploymentinlocalcommunities?ItisclearfromthedataprovidedbytheFTZBoardthatFTZsdosupportdirectjobs,andtheirnumberisgenerallyincreasing.Inaddition,economicactivityhasincreased,asindicatedbythegrowingnumberofFTZsandtheincreaseinthenumberoffirmsusingthem.Buthowbroadlyarethesebenefitssharedwithothercompaniesandworkers?
(2) DoestheFTZprogramsupporteconomicactivityandjobsthatwouldnototherwiseexist–i.e.,“which,forcustomsreasons,mighthaveotherwisebeencarriedonabroad”(perthepurposeoftheprogramnotedabovefromtheFTZregulations)?Ofcourse,“provinganegative”is,intheviewofmany,impossible.Nevertheless,arethereinstancesthatdemonstratethateconomicactivitywouldhavetakenplaceoutsidetheUnitedStateshadFTZbenefitsnot“tippedthescales”infavorofaU.S.location?
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III. Ourapproach
Werespondtothesequestionsusingtwoapproaches.Thefirstquestionisaddressedbyeconometricanalysis,whichwesummarizebelowandpresentindetailinAppendixA.ThesecondquestionisansweredbyprofilingaselectionofcompaniesthatusetheFTZprogram.HighlightsofindividualcompanyexperienceswithFTZsaredescribedhere;moredetailedcompanyprofilesareprovidedinAppendixB.
A. Econometrics
FirmsthatoperatewithinanFTZcantakeadvantageofavarietyofcostsavingsrelatedtoproductionandtrade.Onewouldexpectthatfirmswouldusethosecostsavingstoincreaseproduction,wages,oremployment,orinternalizecostsavingsinsomeotherway(e.g.,increaseresearchanddevelopmentspendingorincreaseddistributionstoshareholders).Inothercases,wemayexpectnewfirmstousetheFTZprogramtotakeadvantageofthesecostsavings.WealsoanticipatethatfirmsactiveinFTZsdobusinesswithfirmsoutsidethezones,suchthatthereare“rippleeffects”oneconomicactivitytoabroadergeographicareathantheFTZitself(theso-called“spillovereffects”examinedbyGhoshetal(2016)asnotedabove).
ToassessthedegreetowhichtheestablishmentofanFTZstimulateseconomicactivityandemploymentinthegreaterFTZarea,wepursuedatwo-foldeconometricapproach.UnlikeGhoshetal,whofocusedonnon-manufacturingactivityinandoutofthezones,weexamineallFTZactivity,i.e.,manufacturingaswellasnon-manufacturinganditsimpactsonmanufacturingandnon-manufacturingactivitybothinsideandoutsidethezones(inwhatwecallZoneEconomicCommunities,ZECs).AppendixAprovidesdetailsofthedata,modeling,andresults.Here,wepresentasummaryoftheresults.
Figure1plotstheaveragepercentagepointchangesinemployment,wages,andvalueaddedthataZECexperiencesinthe10yearsfollowingtheestablishmentofanFTZ.Itshowsaveragegrowthforall251ZECsthathaveanactiveFTZ.TheFigureshowsthatemployment,wages,andvalueaddedincreaseinthebroaderzonecommunityaftertheareasestablishanFTZ.Thosegainshappenthemostintheearlyyearsforemploymentandwages,andthroughouttheperiodforvalueadded.TheyevenbegininadvanceoftheformationoftheFTZ(somethingeconomistscallan“anticipationeffect”):localcommunitieswitnessarampingupofeconomicactivityinconcertwiththeeffortthatresultsintheestablishmentoftheFTZ,typicallyonetotwoyearsinadvance.Forexample,whenmeasuredfromthedateofestablishmentoftheFTZ(“noanticipationeffect”),thepercentagechangeinemploymentintheZECfiveyearslateris0.0100percentagepointsgreaterthanitwaswhentheFTZwasestablished.WhenmeasuredfromtheyearbeforetheFTZwasestablished(“oneyearanticipationeffect”),employmentintheZECwas0.0114percentagepointsgreaterfiveyearsaftertheFTZwasestablished.Finally,whenmeasuredtwoyearspriortotheestablishmentoftheFTZ(“two-yearanticipationeffect”),thepercentagechangeinemploymentintheZECis0.0111percentagepointsgreaterfiveyearsaftertheFTZwasestablished.
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Figure1.PercentagepointchangesinZECeconomicactivityafterFTZestablished
Panel1a.Employment
Panel1b.Wages
Panel1c.Valueadded
0.0000
0.0040
0.0080
0.0120
1 2 3 4 5 6 7 8 9 10
2yearsanticipationeffect 1yearanticipationeffect Noanticipationeffect
YearsafterFTZestablished
0.0000
0.0050
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2yearsanticipationeffect 1yearanticipationeffect Noanticipationeffect
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2yearsanticipationeffect 1yearanticipationeffect NoanticipationeffectYearsafterFTZestablished
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Whilethisfindingisuseful,itisnotnecessarilyindicativeofacausaleffect–i.e.,thatformationoftheFTZcausedtheobservedincreasesinemployment,wagesandvalueadded.Forthat,weneedadifferentmodelingapproach.
TounderstandtheportionofthechangesinZECeconomicactivity(showninFigure1)attributabletotheestablishmentofanFTZ,weexaminedthechangesinemployment,wagesandvalueaddedineachofthe251ZECscomparedtoanotherwisesimilareconomiccommunityinthesameregionthatdidnothaveanFTZ.OureconometricmodelingapproachisdetailedinAppendixA.
WefoundthattheformationofanFTZhadasmallbutpositiveimpactonemployment,wages,andvalueaddedintheZEC(seeFigure2).EachbarrepresentstheestimatedeffectoftheFTZintheZECintheyearsfollowingtheestablishmentoftheFTZinwhichtheimpactoccurred.
Specifically,theestablishmentofanFTZresultsinabouta0.2percentagepoint(ppt)increaseinemploymentgrowthintheZEC(thatwouldnothaveoccurredotherwise),andthisincreaseoccursroughlyeightyearsaftertheformationoftheFTZandlastsatleast10yearsout.FTZsaccountforasmuchasa0.35pptincreaseinwagegrowthfortheZEC,registeringaboutsixtoeightyearsaftertheformationoftheFTZ.TheeffectoftheFTZonvalueaddedgrowthstartsinaroundtheeighthyear,andontheorderof0.31to0.37ppts.
Toputtheseresultsintocontext,employmentintheBuffalo,NewYorkZECis762jobshigherthanitwouldbeintheabsenceoftheFTZinthatZEC;inMilwaukee,WI,anadditional1,290jobsareowedtothepresenceoftheFTZinthatZEC,andinCleveland,OH,anadditional1,571jobsexistbecauseoftheFTZ.AcrossallZECs,andextrapolating,ouranalysissuggestthattheestablishmentoftheFTZinaZECresultedinatotalof118,287additionaljobsacrosstheallZECscombined.
Wedisaggregatedourresultsforsmall-andmedium-sizedZECs(areaswithpopulationlessthan500,000).Thewageandoutputimpactsbeginearlier,areatleastaslargeinmagnitude,andlastjustaslong.TheFTZeffectonwagesbeginsstartingaroundthesixthyearout,isontheorderof0.25to0.35ppt,andlastsatleast10yearsout.TheFTZeffectonvalue-addedalsobeginsaroundthesixthyearout,isontheorderof0.28to0.42ppt,andlastsatleast10yearsout.Theemploymentimpactforsmall-andmedium-sizedZECsbeginsintheeighthyearandreachesarateof0.2pptintheninthand10thyearsout.Thatis,eightto10yearsaftertheFTZisestablished,theemploymentchangeintheZECis0.2pptgreatercomparedwithanotherwisesimilareconomiccommunity,andthatdifferenceintheemploymentchangecanbeattributedtotheFTZ.
10
Figure2.EffectsongrowthinZECemployment,wages,andvalueadded,averageacrossallZECsaftercommencementofzoneoperations(inpercentagepoints)
Figure3.EffectsongrowthinZECemployment,wages,andvalue-added,averageacrosssmall-andmedium-sizedZECsaftercommencementofoperations(inpercentagepoints)
B. Companyprofiles
MinandLambert(2010)surveyednearly200companiesusingtheFTZprogramin2007abouttheirreasonsforusingFTZsandthebenefitstheyreceived.NearlyhalfbelievedFTZcostsavingshelpedthemtoretainemploymentattheirfacilities,andmorethanhalfbelievedtheirFTZ’sactivitiesspurredcapitalinvestmentintheFTZregion.BeyondMinandLambertandanecdotalevidenceinBolleandWilliams2013,companyevidenceoftheimpactsoftheFTZprogramissparse.Therefore,toputa“face”onour
0.140.17
0.19
0.290.32
0.340.31
0.33
0.37
year8 year9 year10
Employment Wages Valueadded
0.140.18
0.20
0.25 0.25
0.290.33
0.35
0.280.32
0.340.36
0.41
year6 year7 year8 year9 year10
Employment Wages Valueadded
11
econometricresults,wereachedouttoseveralU.S.FTZcompaniestoascertainthewaysinwhichtheprogramimpactstheirbusinessandtheeconomiccommunitiesinwhichtheyoperate,bothdirectlyandindirectly.
WefoundsupportforconclusionsthatcompanyaccesstoFTZshassubstantialrippleeffectsthroughthecompany’ssupplychain,muchofwhichistypicallylocatednearby.BMWanalyzeditseconomicimpactontheSouthCarolinaandnationaleconomiesandfoundthatitsFTZoperationsdirectlyandindirectlyadd$6.3billionannuallytoSouthCarolina’seconomyandleadtotheemploymentof36,285peopleintheState.TheoverallfootprintintheUnitedStatesisevenlarger,withvalueaddedbyBMWof$15.77billionandemploymentof120,855.Ineachcase,thesefiguresincludeboththedirectcontributionofBMWandthecontributionviapurchasesofBMWanditsemployeesthatwouldnotexistifBMWwerenotestablishedintheUnitedStates.A2017studybytheUniversityofSouthCarolinafindsthatforevery10jobsthataredirectlygeneratedataU.S.BMWfacility,anadditional90jobsarecreatedelsewhereintheU.S.economyasadirectresultoftheseBMWjobs.
Similarly,ExxonMobilassessedtheeconomicimpactsofitsLouisianaoperations(allwithinanFTZ)ontheLouisianaeconomyandfoundoneoutofeveryeightjobsintheBatonRougeareacanbetracedbacktoExxonMobil.Everyyear,ExxonMobil’spurchasesofgoodsandservicesfromprovidersinthelocalcommunitysupportcommunitypayrolls$61.7millionandgenerateannualstateandlocaltaxwellintothemillionsofdollars.
TheFTZoperationsinGeorgiaofYamahaMotorManufacturingCorporationofAmericaresultedinexpendituresofmorethan$170millionannuallywithmorethan100U.S.partssuppliers.About30percentofthepartsandcomponentsusedtomakeitsproductsintheFTZcomefromGeorgia-basedsuppliers;another20percentcomesfromotherU.S.-basedsuppliers.
FTZbenefitsensuredthatdirectandindirectjobsremainintheUnitedStates.Duringacompanyrestructuring,thesavingsaffordedbytheFTZprogramtippedthescalesinHellyHansen’sdecisiontolocatecompanywarehouseoperationsfromCanadatothecompany’sU.S.warehouselocationinAuburn,Washington,expandingdirectandindirectjobsthere.
FTZbenefitsarecrucialtomaintainingcompetitivenessinforeignmarketsfromaU.S.productionlocation.ThesavingsaffordedbytheFTZprogramsupportLamResearchCorporation’sR&DactivitiesintheUnitedStates,enablingittoremainahigh-volumemanufacturerbasedinAmerica.
FTZbenefitshavebroughtproductionjobstotheUnitedStates.ProdecoTechnologies,aneBikemanufacturerinFlorida,usesitsFTZdutysavingstokeepitsfinishedbikepricescompetitivewithforeign-assembledeBikesthatcanbeimportedintotheUnitedStatesduty-free.ProdecocancompetewithimportsusingAmericanworkersdoingtheassemblyandwithaclosereyeonqualitycontrol.PiramalCriticalCare’sBethlehem,
12
Pennsylvania-basedproductionofanesthesiaproductsareabletocompetewithlower-costimportedproductsthankstoduty-savingsitgetsfromtheFTZprogram.Thebenefitsenabledthecompanytogrow,expandemployment,modernizeitsfacility,andincreasecapacitythree-fold.
FTZsavingshaveenabledcompaniestodirectcompanyresourcestotheirmostefficientuses,e.g.,workertraining(UniCarriersAmericas).SavingsaffordedbytheFTZprogramhaveenabledcompaniestoraiseworkerskillsandtoincreasehiringaswell.
Fromtheprofiles,itisevidentthatFTZstatuscontributestoacompany’sevaluationofrelativecostsofproductionintheUnitedStatesversusoutsidetheUnitedStates.Ineachcase,FTZbenefitsfiguredpositivelyintothecompanydecisiontoincreasevalueaddedactivityintheUnitedStates.Thisistruenotjustforsmallcompanies,butalsoforlargemultinationalcorporations.Also,inseveralcasesFTZbenefitshelpedcompaniesadjusttothecompetitivepressurescreatedbymultilateraltariffreductionaffectingfinishedimportedgoodsrelativetotheirimportedcomponents.
DetailedcompanyprofilesarepresentedinAppendixB.
13
IV. Conclusion
TheeconomicimpactsoftheU.S.FTZprogramoncommunitiesinwhichFTZsarelocatedarepositive.WefindthattheformationofanFTZhasasmallbutpositiveimpactonemployment,wages,andvalueaddedinthebroadercommunityoftheFTZ.Theyareparticularlyimportanttolocalcommunitiesafterthebusinessesthatusethebenefitshavematured.Certainly,smalleffectscanstillbesignificanttosmallercommunities.
ThesizeofthebenefitsoftheFTZprogramongrowthincommunityemployment,wages,andvalueaddedshouldbeviewedinthecontextoftheeconomygenerally.Over3,000companiesparticipateintheFTZprogramintheUnitedStates,comparedtonearly6millioncompaniesintheUnitedStatesasawhole.12Over450,000peopleareemployedbycompanieswithFTZoperations–butoutofnearly147millionnonfarmemployeesnationally.13OurresultsdemonstratethattheFTZprogram’sbenefitstolocalcommunitiesarepositive,butsmallbecausetheprogramitselfisrelativelysmall.
AstheFTZprogramhasexpandedovertheyears,andasthe“termsofengagement”broadenedandmadeiteasiertouse,thenumberofcompanies–andthecommunitiesinwhichtheyoperate–havegrown.Knowingthatthebenefitsoftheprogramtolocalcommunitiesarepositive,onewaytoincreasethosebenefitsistobroadenthe“termsofengagement”evenfurther.Inthealternative,dampeningtheuseofFTZprogrambenefits,forexample,byincreasingpaperwork/recordkeepingrequirementsornarrowingthescopeoftheproductsthatcanbeusedwithinthecompany’sFTZoperations,wouldreducethecompanyandcommunity-wideeconomicbenefitsassociatedwiththeprogram,andlikelyhavefurthernegativeramificationsforZECs.
Finally,itisworthnotingthatcompaniestypicallyhaveachoice:theycanoperateintheUnitedStatesoroutsidetheUnitedStates.Theywilldecidewhichchoicetomake–andthelevelofcommitmentandinvestmenttodevotetothatchoice--basedinpartontherelativecostsofdoingbusinessintheUnitedStatesorabroad.Totheextentthattheprogramcanprovideone(more)positivereasonforaU.S.location,suchprogramsmeritthesupportofU.S.policymakers.
12 AccordingtotheCensusBureau,5.9millionfirmsoperatedintheUnitedStatesin2015,themostrecentyeardataareavailable.“2015SUSBAnnualDataTablesbyEnterpriseIndustry,”January2018,https://www.census.gov/data/tables/2015/econ/susb/2015-susb-enterprise.html.
13 BureauofLaborStatistics,totalnonfarmemployment,2017,https://www.bls.gov/data/#employment.
14
V. References
Bobonis,G.andShatz,H.(2007).“Agglomeration,Adjustment,andStatePoliciesintheLocationofForeignDirectInvestmentintheUnitedStates,”ReviewofEconomicsandStatistics,vol.89,issue1,February2007.
Bolle,M.,andBrock,W.(2013).“U.S.Foreign-TradeZones:BackgroundandIssuesforCongress.”CongressionalResearchService.November12,2013.https://fas.org/sgp/crs/misc/R42686.pdf.
Ghosh,S.,Reynolds,andC.Rohlin,S.(2016).“ThespillovereffectsofUnitedStatesforeigntradezones.”2016.AppliedEconomics.48:42,4112-4130.https://www.tandfonline.com/doi/abs/10.1080/00036846.2016.1153787?journalCode=raec20.
Hastings,J.(2004).“VerticalRelationshipsandCompetitioninRetailGasolineMarkets:EmpiricalEvidencefromContractChangesinSouthernCalifornia,”TheAmericanEconomicReview,Vol.94,no.1,pp.317-328.
Head,K.,Reis,J.,andSwenson,D.(1999).“Attractingforeignmanufacturing:Investmentpromotionandagglomeration,”1999.RegionalScienceandUrbanEconomics,Vol.29,197-218.
Imbens,G.andWooldridge,J.(2007),“Difference-in-DifferencesEstimation,”LectureNotes10,NBERSummer2007.
Min,H.andLambert,T.(2010).“Utilisationofforeigntradezonesintheglobalsupplychain:anexploratorystudy”(2010).ManagementFacultyPublications.6.https://scholarworks.bgsu.edu/management_pub/6.
Tiefenbrun,S.(2013).U.S.ForeignTradeZones,Tax-FreeTradeZonesoftheWorld,andTheirImpactontheU.S.Economy(January30,2013).HofstraInternationalLaw&BusinessJournal,Vol.13,2013;ThomasJeffersonSchoolofLawResearchPaperNo.2209319.
UnitedStatesGovernmentAccountabilityOffice(2017).“ForeignTradeZones:CBPShouldStrengthenItsAbilitytoAssessandRespondtoComplianceRisksacrosstheProgram”(July2017).GAO17-649.https://www.gao.gov/products/GAO-17-649.
Wooldridge,J.(2012),IntroductoryEconometrics,AModernApproach,5thed.,CengageLearning.
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AppendixA:Econometricanalysis
ThisAppendixdescribesoureconometricapproachtoestimatingtheimpactsoftheForeign-TradeZone(FTZ)program’sbenefitsonU.S.employment,wagesandvalueaddedinthegreaterFTZarea.Wefirstdescribethedata,thentheeconometricapproach,andfinally,theresults.
A. Data1. DataonFTZsintheUnitedStates
TheestablishmentofFTZsgoesbacktothe1930s,althoughmostwereestablishedinthe1980sand1990s(SeeFigureA-1).
FigureA-1.NumberofForeignTradeZonesestablishedbydecade
Source:U.S.ForeignTradeZones,U.S.DepartmentofCommerce.Availableat:https://enforcement.trade.gov/ftzpage/letters/ftzlist-map.html.
FTZshavebeenestablishedacrossthecountryandexistineveryregionandeverystate.NearlyallareaswithanFTZhavesomedistincteconomicgeographyandinfrastructure,suchasacomprehensivetransportationinfrastructure,anagglomerationofkeyindustries,andeconomichubsofactivity.
ThemapinFigureA-2markseachcurrentlyactiveFTZbyestablishmentperiod,alongwithinternationalairports,andcontainerports.Themapiscomposedofthreeseparatelayers,asnotedinthelegendinthelowerrightofthemap.Thefirstlayercontainsthe
2 50
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120
1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2010s
Num
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16
FTZlocationsbyestablishmentyear,whilethesecondandthirdcontainthelocationsofinternationalairportsandcontainerports,respectively.NearlyeveryinternationalairportandcontainerportintheUnitedStateshasanFTZinthearea.Communitieswithdeep-waterportfacilitiesweresomeoftheearliestzoneprojectstobeestablished.Morerecently,overthelast40years,theestablishmentofzoneprojectshavemainlybeenincommunitiesthatdonothavedeep-waterportfacilities.
FigureA-2.FTZsintheUnitedStates
Sources:U.S.PortandInlandWaterwaysModernization,U.S.ArmyCorpsofEngineers,InstituteforWaterResources;2012;BureauofTransportationStatistics,U.S.DepartmentofTransportation;andNationalAssociationofForeignTradeZones.MapcreatedinGoogleMapsbyTheTradePartnership,2018.
2. MatchingFTZswitheconomicdata
ForthepurposesofbuildingtheFTZeconomicdataset,wedefinethegeographyofeachFTZeconomiccommunityatthecountylevelandthenmatchcounty-levelemployment,wageandvalueaddeddata,overtime,toeachFTZarea.
WestartbydefiningtheeconomiccommunityofanFTZastheareainaconcentriccirclewitha17.5-mileradiusaroundthecenterofthezone.14Thecenterofthe
14 Weaimtocastanetsufficientlywidetocapturerelevantcommunity-wideeconomicactivityrelatedtotheFTZ,andwebasethedistanceonthelengthoftheaveragecommuteintheUnitedStates.AnanalysisbyBrookings(2016)ofthe2011LongitudinalEmployerHouseholdDynamicsdatashowsthe
17
concentriccircleisthemostcentralanddenseareaoftheFTZ(intermsofpopulationandindustry).EachZECwasmappedtothecorrespondingcountyorcountiesthathaveatleastamajorityoftheirareawithinthe17.5-mileradius.
Wecollectedemployment,wage,andvalueaddeddatafromMoody’sAnalyticsforeveryU.S.countyovertime;specifically,employment(1970-2017),nominalwages(1975-2017),andnominalvalueadded(1978-2017).TheMoody’sdatacontain3,142countiesand556detailedsectors.Thewagedatacoverhourlywagesandsalariespaid,andhencethesewagedatarepresentlaborincomeinourdatasetandanalysis.
Wesummedeacheconomicseriesacrossthesectors,bycounty,andobtainedthecorrespondinglongitudinaldataonemployment,wage,andvalueadded,bycounty.
Seventeen(17)FTZshadlapsedorrelinquishedstatusandthosewereexcluded.ArelinquishedFTZstatusindicatesthattheentitygrantedtheFTZvoluntarilyrelinquisheditsgrantofauthorityfromtheForeign-TradeZonesBoardorthegrantofauthoritylapsedunderForeign-TradeZoneBoardpolicy/regulationduetolackofuse.TwoFTZgranteeshavevoluntarilyrelinquishedtheirgrants(FTZ48,TucsonAZandFTZ188,YakimaWA).FifteenFTZsarecurrentlyconsideredinlapsedstatus,withestablishmentdatesrangingfrom1983to2011.15
WealsoexcludedtheeightFTZswithmergedstatus,whichindicatesthatanFTZ’sgrantofauthoritywassubsumedunderanexistingFTZ.Forexample,FTZs66,Wilmington,NCand67,MoreheadCity,NC,weremergedwithFTZ214,LenoirCounty,NCin2014.FTZ214,LenoirCountynoweffectivelyencompassestheareaspreviouslycoveredbyFTZs66and67.BymergingFTZsincloseproximitytooneanother,granteescanreduceadministrativecosts.However,thesemergerspresentmethodologicalproblemsforouranalysisbecausemergedFTZshavenocleargeographical,time-invariantboundary.
Ourcleaneddatasetconsistsof251ZECsthathaveFTZstatus(areoperating),witheconomicdataforemployment(1970-2017),wages(1975-2017),andvalueadded(1978-2017),yieldingabalancedpaneldatasetof12,048observationsforFTZsandemployment;10,793observationsforFTZsandwages;and9,400observationsforFTZsandvalueadded.
These251ZECsallsharedistinctFTZ-typecharacteristicsintermsoftheireconomicgeography,suchaslocation,transportationinfrastructure(e.g.,theexistenceofaport,
typicalcommutetimeacross96metroareasintheUnitedStatesrangesfrom4.7milesto12.8miles.Doublingthosefigurestocapturethosethatworkbothinandontheoutskirtsoftheeconomiccenter(9.4and25.6miles,respectively)thentakingthemidpointresultsina17.5-mileradius.SeeBrookings,“ThegrowingdistancebetweenpeopleandjobsinmetropolitanAmerica,”byE.KneeboneandN.Holmes,2016,(seeappendixB).15 TherewerefourterminatedFTZs,buttheywereallestablishedpriorto1975,thestartingpointofouranalysis.
18
airport,highwaysystem,orrailwaysystem),andconnectiontootherhubsofeconomicactivity.Thirty-sixZECsareincitieswithpopulationgreaterthan500,000,andtheremaining215ZECsareinsmallormediumcitieswithlessthan500,000population.ThepopulationistheonemajordifferenceacrosstheFTZsandhencewepresenttheeconometricresultsinthreesets:allareas,small-andmedium-sized(basedonpopulation)ZECs,andhighpopulationZECswherethedataallow.
B. Econometricapproaches
WeemployedeconometricanalysistoexaminetheregionaleffectsofestablishinganFTZonthreemeasuresofeconomicactivity:employment,wages,andoutputasmeasuredbyvalueadded.AsdetailedinthisstudyandsummarizedearlierinBox1,firmsthatoperatewithinanFTZcantakeadvantageofavarietyofcostsavingsrelatedtoproduction,trade,andcorrespondingsupplychainlogistics.Onewouldexpectthatfirmswouldusethosecostsavingstoincreaseproduction,wages,oremployment,orinternalizecostsavingsinsomeotherway(e.g.,increaseresearchanddevelopmentspending,additionalworkertraining,orincreaseddistributiontoshareholders).Inothercases,wemayexpectnewfirmstobeginusingthezoneinordertotakeadvantageofthesecostsavings.
OurinterestistheeconomiceffectsofFTZsonthehostcitiesandimmediatelysurroundingareasoftheFTZ.Wepursuedatwo-foldeconometricapproach.First,weusea“fixedeffects”modeltoexplorehoweconomicactivityinaZECchangesafteranFTZisestablished.Second,weusea“differenceindifference”(DID)estimationapproachtoestimatetheFTZeffectsoneconomicactivityintheZEC.TheDIDapproachallowsustoobtainanappropriatecounterfactualtoestimateacausaleffect.
1. Fixedeffectsestimation
AfixedeffectsestimateisusedtoexaminehoweconomicactivityintheZECchangesafteranFTZisestablished.Itenablesustoassesstherateofgrowthinavariable(employment,wages,valueadded)inyearspriortotheformationofanFTZ,andintheyearsfollowingtheestablishmentoftheFTZ.ThefixedeffectsresultsarenotnecessarilyanestimateofacausaleffectoftheFTZ,butareusefulinunderstandinghoweconomicactivitychangesafteranFTZisestablishedinanareaandserveasausefulcheckonthedataandourresultsforoursecondeconometricapproach,describedinthenextsection.
Thefixedeffectsapproachisshownbyequation(1):
𝑑𝑦!,!! = 𝛾! + 𝛿! + 𝛽!𝑥!,! + 𝜀!,!(1)
where𝑑𝑦!,!! isthej-yearchangeinFTZi’seconomicactivity(employment,wages,valueadded),andj=1,2,…,10.𝛾! isthefixedeffectforFTZi,and𝛿!isthefixedeffectforyeart.𝑥!,! takesonavalueofonekyearsaftertheFTZwasestablishedandzerootherwise,wherek=1,2,…,10.Thatis,weallowuptotenyearsforaneffecttoappear.
19
FTZdummies𝛾!capturetheeffectsoftimeinvariantcharacteristicsthatdeterminethechangeineconomicactivity𝑦(employment,wages,valueadded),includingsecularproductivityandgeographicorotherendowmentdifferences.TheFTZfixedeffectscontrolforthetimeinvariant,inter-FTZvariation,whichisimportantbecausearegressionrelyingoninter-FTZvariationwouldbeproblematicduetopotentialomittedvariablebias.Hence,weincludetheFTZfixedeffectstocontrolforinter-FTZvariation.Theyearfixedeffects𝛿!accountforannualshockscommontoallFTZareas,andcontrolfor(“soakup”)nationwidemacroeconomicconditionsincludinginflation.Thecoefficientontheindicatorvariable,𝛽,isourcoefficientofinterest,andcapturesthevariationwithineachFTZovertime(theintra-FTZvariation).
Forinstance,consideragain𝑦=employment.Thecoefficientontheindicatorvariable,𝛽,capturestheemploymentchangeintheFTZioveraj-yearperiodfromFTZestablishmenttokyearsout,wherekisasubsetofj.Weusezero,one,andtwoyearlagsinthedependentvariabletoallowforanticipationeffects,thatis,aramp-upofeconomiceffortsandinitiativesthatforward-thinkingcommunitiesandbusinessesengageintheyearsimmediatelyprecedingtheireffortstocreatetheirFTZproject.Ifthereisananticipationeffect,thenusingtheyearortwopriortotheestablishmentdatewouldallowforamoreaccurateestimateoftheimpactoftheformationofanFTZ.
ThereisasufficientnumberofobservationsinthefixedeffectsapproachtoexamineallZECs:small-andmedium-sizedZECs,andhighpopulationZECs.Forthedifferenceindifferenceapproach,however,becausewecontrolforregionaleffects,wecanonlyexamineallareasandsmall-andmedium-sizedZECsandduetoaninsufficientnumberofobservationsforhighpopulationZECsbyregionwedonotbreakouthighpopulationZECsfortheDIDresults.
a. Fixedeffectsemploymentresults
FigureA-3andTablesA-1,A-2andA-3reporttheeconometricestimationresultsfromequation(1)foremploymentinallZECs,small-andmedium-sizedZECs,andhighpopulationZECs,respectively.
Theseresultssuggestthat,onaverage,thepercentagechangeinemploymentintheZECaftertheestablishmentofanFTZispositiveandsignificantatone,two,three,four,five,six,andsevenyearsaftertheFTZisestablished,andthatthisresultholdsusingdatafromoneandtwoyearspriortotheestablishmentdate.Theanticipationeffectismorevisibleforthesmallerandmediumareasthanthehighpopulationareas.Thetimingalsodiffers:thesmallerandmediumZECsexperienceincreasesinemploymentalmostimmediately,whilehighpopulationZECsexperiencetheincreaseinlateryears.Themagnitudeoftheemploymentincreaseisapproximatelya0.01pptchangeforsmall-andmedium-sizedZECs,and0.025pptforhighpopulationZECs.
Inotherwords,asmallormediumZECthatcirclesalocationthatbecomesanFTZ,onaverage,experiencessmallbutpositiveandstatisticallysignificantchangesinemploymentinthefirstsevenyears,comparedwithotherwisesimilarZECsthateither
20
havealreadybecomeFTZsorwillinthefuture.HighpopulationZECsexperienceslightlylarger(andstatisticallysignificant)changesinemploymentbutinlateryears,i.e.,seven,eight,nine,and10yearsout.
Again,theseresultsdonotindicateofacausaleffect.Inotherwords,theydonotdemonstratethattheformationoftheFTZcausedtheaccelerationinthegrowthinemploymentintheZEC.
FigureA-3.PercentagepointchangesinZECemploymentafterFTZestablished
0.0000
0.0040
0.0080
0.0120
1 2 3 4 5 6 7 8 9 10
2yearsanticipationeffect 1yearanticipationeffect Noanticipationeffect
YearsafterFTZestablished
21
TableA-1.EmploymentchangesfollowingestablishmentofFTZ,allZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 0.0035 0.0036 * 0.0022 *(.0025438) (.0019592) (.0011718)
0.175 0.066 0.0562 0.0063 ** 0.0063 ** 0.0049 **
(.0030076) (.0025433) (.001959)0.036 0.013 0.012
3 0.0089 *** 0.0088 *** 0.0073 ***(.0033939) (.003007) (.002543)
0.009 0.003 0.0044 0.0105 *** 0.0108 *** 0.0091 ***
(.0036878) (.0033934) (.0030069)0.004 0.002 0.002
5 0.0111 *** 0.0114 *** 0.0100 ***(.0039496) (.0036876) (.0033936)
0.005 0.002 0.0036 0.0103 ** 0.0107 *** 0.0094 **
(.0042051) (.0039497) (.0036882)0.014 0.007 0.011
7 0.0091 * 0.0094 ** 0.0081 **(0.0044377) (.0042041) (.0039495)
0.04 0.025 0.0418 0.0071 0.0069 0.0056
(.0046362) (.0044368) (.0042039)0.125 0.12 0.187
9 0.0045 0.0042 0.0024(.0047988) (.0046349) (.0044363)
0.35 0.367 0.58410 0.0026 0.0021 0.0002
(.0049036) (.0047972) (.0046341)0.599 0.666 0.97
Note:Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.
Startingpoint
22
TableA-2.EmploymentchangesfollowingestablishmentofFTZ,small-andmedium-sizedZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 0.0050 * 0.0045 ** 0.0026 **(.0028522) (.0022082) (.0013292)
0.08 0.042 0.0492 0.0081 ** 0.0075 *** 0.0056 **
(.0033607) (.0028515) (.0022079)0.016 0.009 0.012
3 0.0106 *** 0.0100 *** 0.0080 ***(.0037848) (.0033601) (.0028514)
0.005 0.003 0.0054 0.0120 *** 0.0117 *** 0.0096 ***
(.0041036) (.0037845) (.0033602)0.004 0.002 0.004
5 0.0122 *** 0.0120 *** 0.0102 ***(.0043885) (.0041036) (.003785)
0.006 0.003 0.0076 0.0109 ** 0.0107 ** 0.0090 **
(.0046699) (.0043889) (.0041046)0.019 0.015 0.028
7 0.0090 * 0.0088 * 0.0071(.0049305) (.0046693) (.0043891)
0.067 0.061 0.1078 0.0063 0.0056 0.0039
(.0051573) (.0049299) (.0046695)0.218 0.256 0.402
9 0.0033 0.0025 0.0003(.0053459) (.0051566) (.00493)
0.533 0.633 0.95110 0.0009 -0.0001 -0.0025
(.0054679) (.005345) (.0051566)0.863 0.983 0.633
Note:Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.Excludescitieswithapopulationof500,000ormore.
Startingpoint
23
TableA-3.EmploymentchangesfollowingestablishmentofFTZ,highpopulationZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 -0.0155 -0.0073 * -0.0024(.0050813) (.003707) (.0020594)
0.002 0.05 0.2532 -0.0165 -0.0082 -0.0030
(.0062299) (.0050928) (.0037109)0.008 0.109 0.425
3 -0.0148 -0.0067 -0.0015(.0071801) (.0062424) (.005097)
0.039 0.285 0.7754 -0.0101 -0.0026 0.0023
(.0079738) (.0071905) (.0062446)0.204 0.716 0.714
5 -0.0051 0.0025 0.0067(.0086583) (.0079781) (.0071886)
0.557 0.756 0.3526 0.0003 0.0079 0.0121
(9.0092653) (.0086567) (.0079718)0.978 0.361 0.129
7 0.0057 0.0135 0.0177 *(.0097476) (.0092579) (.008646)
0.556 0.145 0.048 0.0103 0.0177 * 0.0220 *
(.0100847) (.0097365) (.0092456)0.306 0.07 0.018
9 0.0121 0.0197 * 0.0242 *(.0103161) (.0100595) (.009714)
0.24 0.05 0.01310 0.0151 0.0221 * 0.0268 ***
(.0104591) (.0102891) (.0100354)0.15 0.032 0.008
Note:Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.Onlycitieswithapopulationof500,000ormore.
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b. Fixedeffectswageresults
FigureA-4andTablesA-4,A-5,A-6reportthefixedeffectsestimationresultsfromequation(1)forwages,forallZECs,forsmall-andmedium-sizedZECs,andforhighpopulationZECs,respectively.Again,wagesaredefinedastotalwagesandsalarydisbursements.
Theseresultssuggestthat,onaverage,thepercentagechangeintotalwagespaidispositiveandstatisticallysignificantforthebroaderFTZareasimmediatelyaftertheFTZisestablishedandforeveryyearoutto10years.Thechangeinwagesisslightlylargerwhentheyearpriortoestablishmentisusedasthebenchmark,whichreflectsananticipationeffect(firmsmayhaveincreasedtheamountofwagespaidouttheyearpriortotheFTZbeingestablished,astheyrampedupactivitiesinanticipationoftheFTZbenefits).Thechangeinwagesreachesitsmaximum(0.02ppt)ataboutsixorsevenyearsout.
Small-andmedium-sizedZECsexperiencehigherwagesimmediatelyafteranduntilouteightornineyearsaftertheestablishmentoftheFTZ.HighpopulationZECsexperienceawageincreasesthatareslightlygreaterinmagnitude(0.03ppt)althoughnotuntilaroundsixtoeightyearsout.Theanticipationeffectisvisibleinsmall-andmedium-sizedZECsbutnothighpopulationZECs.
Aswithemployment,thesewageincreaseresultsdonotindicateofacausaleffect.Inotherwords,theydonotdemonstratethattheformationoftheFTZcausedtheaccelerationinthegrowthinwagesintheZECs.
FigureA-4.PercentagepointchangesinZECwagegrowthafterFTZestablished,allZECs
0.0000
0.0050
0.0100
0.0150
0.0200
0.0250
1 2 3 4 5 6 7 8 9 10
2yearsanticipationeffect 1yearanticipationeffect Noanticipationeffect
YearsafterFTZestablished
25
TableA-4.WagechangesfollowingestablishmentofFTZ,allZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate Establishmentdate
1 0.0052 0.0052 ** 0.0033 **(.0033045) (.0025828) (.0016339)
0.1160 0.0420 0.04102 0.0093 ** 0.0097 *** 0.0082 ***
(.0038299) (.0033011) (.002582)0.0150 0.0030 0.0020
3 0.0137 *** 0.0138 *** 0.0122 ***(.0042849) (.0038259) (.0033)
0.0010 0.0000 0.00004 0.0175 *** 0.0173 *** 0.0161 ***
(.004679) (.0042807) (.0038249)0.0000 0.0000 0.0000
5 0.0203 *** 0.0199 *** 0.0185 ***(0.0050277) (.004675) (.0042801)
0.0000 0.0000 0.00006 0.0210 *** 0.0203 *** 0.0188 ***
(.0053323) (.0050249) (.0046756)0.0000 0.0000 0.0000
7 0.0214 *** 0.0208 *** 0.0189 ***(.0055997) (.0053253) (.0050221)
0.0000 0.0000 0.00008 0.0191 *** 0.0183 *** 0.0167 ***
(.0058439) (.0055929) (.0053228)0.0010 0.0010 0.0020
9 0.0163 *** 0.0149 ** 0.0132 **(.006017) (.0058353) (.0055887)
0.0070 0.0110 0.018010 0.0146 ** 0.0125 ** 0.0100 *
(.0060874) (.0060061) (.005829)0.0160 0.0370 0.0850
Note:Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.
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26
TableA-5.WagechangesfollowingestablishmentofFTZ,small-andmedium-sizedZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 0.0075 ** 0.0064 ** 0.0039 **(.0037124) (.0029215) (.0018651)
0.0430 0.0280 0.03802 0.0118 *** 0.0112 *** 0.0091 ***
(.0042766) (.0037085) (.0029206)0.0060 0.0030 0.0020
3 0.0162 *** 0.0152 *** 0.0138 ***(.0047693) (.0042722) (.0037074)
0.0010 0.0000 0.00004 0.0196 *** 0.0183 *** 0.0166 ***
(.01964) (.0047652) (.0042715)0.0000 0.0000 0.0000
5 0.0219 *** 0.0205 *** 0.0185 ***(.0055877) (.0051968) (.004765)
0.0000 0.0000 0.00006 0.0217 *** 0.0200 *** 0.0180 ***
(.0059309) (.0055856) (.0051981)0.0000 0.0000 0.0010
7 0.0212 *** 0.0197 *** 0.0175 ***(.0062351) (.0059239) (.0055829)
0.0010 0.0010 0.00208 0.0179 *** 0.0163 *** 0.0144 **
(.0065195) (.0062282) (.0059214)0.0060 0.0090 0.0150
9 0.0147 ** 0.0123 * 0.0103 *(.0067277) (.0065116) (.0062247)
0.0290 0.0590 0.097010 0.0126 * 0.0065 0.0065
(.006814) (.0067174) (.0065058)0.0640 0.1590 0.3190
Note:Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.Excludescitieswithapopulationof500,000ormore.
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TableA-6.WagechangesfollowingestablishmentofFTZ,highpopulationZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 -0.0235 *** -0.0111 ** -0.0042(.0063677) (.0046172) (.0025515)
0 0.016 0.1042 -0.0248 *** -0.0115 * -0.0039
(.0078394) (.0063927) (.0046258)0.002 0.073 0.402
3 -0.0222 ** -0.0084 -0.0002(.009019) (.0078662) (.0064004)
0.014 0.285 0.9814 -0.0163 -0.0024 0.0062
(.0099435) (.0090404) (.0078678)0.101 0.794 0.432
5 -0.0093 0.0044 0.0130(.010641) (.0099536) (.0090332)
0.385 0.659 0.156 -0.0016 0.0115 0.0197 **
(.0111513) (.0106392) (.0099385)0.886 0.278 0.048
7 0.0048 0.0186 * 0.0261(.011559) (.0111379) (.0106175)
0.675 0.095 0.0148 0.0079 0.0220 * 0.0300 ***
(.0118346) (.0115413) (.0111164)0.505 0.057 0.007
9 0.0073 0.0219 * 0.0307 ***(.0119274) (.0117859) (.0114957)
0.538 0.063 0.00810 0.0063 0.0217 * 0.0308 ***
(.0119699) (.0118787) (.0117399)0.598 0.068 0.009
Note:Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.Onlycitieswithapopulationof500,000ormore.
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c. Fixedeffectsvalueaddedresults
FigureA-5andTablesA-7,A-8,andA-9reporttheeconometricestimationresultsfromequation(1)forvalueadded,forallZECs,small-andmedium-sizedZECs,andhighpopulationZECs,respectively.
TableA-7reportstheresultsforallZECsandshowsthat,onaverage,thepercentagechangeinvalueaddedispositiveandstatisticallysignificantattwoyearsoutfollowingtheestablishmentoftheFTZ,andthisvalueaddedchangepersistsuntilatleast10yearsout.Thevalue-addedchangeisslightlylargerinmagnitudeusingoneandtwoyearspriortotheestablishmentdate,whichreflectsananticipationeffect,asdescribedabove.
Forinstance,sixyearsaftertheFTZestablishmentdate,valueaddedchangeis0.0264pptgreaterthantheestablishmentdate,0.0308pptgreateriftheyearpriortotheestablishmentdateisusedasthebenchmark,and0.0314iftwoyearspriorisusedasthebenchmark.Thepptchangeinvalueaddedappearstoreachitsmaximumataboutsevenyears.Thatis,afteraboutsevenyears,valueaddedchangeis0.02to0.03pptgreaterthanitwasattheestablishmentdateoryearbefore,andthatresultholdsuntilatleast10yearsout.
Theresultsforsmall-andmedium-sizedZECs(TableA-8)largelymirrorthoseforallZECs,withthepptchangeinvalueaddedis0.02to0.03ppthighertwoyearsaftertheFTZisestablished,andpersistingforatleast10yearsout.ThechangeinvalueaddedinhighpopulationZECs(TableA-9)isroughlythesamemagnitude,albeitslowertoappear(appearsnineand10yearsout).
FigureA-5.PercentagepointchangesinZECvalueaddedgrowthafterFTZestablished,allZECs
0.0000
0.0100
0.0200
0.0300
0.0400
1 2 3 4 5 6 7 8 9 10
2yearsanticipationeffect 1yearanticipationeffect NoanticipationeffectYearsafterFTZestablished
29
TableA-7.ValueAddedchangesfollowingestablishmentofFTZ,allZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 0.0042 0.0047 * 0.0027(0.003444) (.0026503) (.0016688)
0.2270 0.0740 0.11002 0.0101 ** 0.0094 *** 0.0063 **
(.0040621) (.0034189) (.0026364)0.0130 0.0060 0.0170
3 0.0172 *** 0.0163 *** 0.0120 ***(.004572) (.0040324) (.0034011)
0.0000 0.0000 0.00004 0.0236 *** 0.0230 *** 0.0185 ***
(.0050184) (.0045392) (.0040121)0.0000 0.0000 0.0000
5 0.0284 *** 0.0279 *** 0.0237 ***(.0054283) (.0049844) (.0045181)
0.0000 0.0000 0.00006 0.0314 *** 0.0308 *** 0.0264 ***
(.0057806) (.0053944) (.0049639)0.0000 0.0000 0.0000
7 0.0331 *** 0.0331 *** 0.0286 ***(.0060777) (.0057399) (.0053684)
0.0000 0.0000 0.00008 0.0334 *** 0.0333 *** 0.0290 ***
(.006318) (.0060365) (.0057138)0.0000 0.0000 0.0000
9 0.0324 *** 0.0326 *** 0.0284 ***(.0065393) (.0062747) (.0060083)
0.0000 0.0000 0.000010 0.0329 *** 0.0325 *** 0.0281 ***
(.0067033) (.006493) 0.0062440.0000 0.0000 0.0000
Note:Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.
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TableA-8.ValueAddedchangesfollowingestablishmentofFTZ,small-andmedium-sizedZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 0.0075 * 0.0067 * 0.0035 *(.0038469) (.002974) (.0018884)
0.052 0.024 0.0652 0.0139 *** 0.0120 *** 0.0077 ***
(.0045269) (.0038229) (.0029613)0.002 0.002 0.009
3 0.0211 *** 0.0192 *** 0.0139 ***(.0050895) (.0044988) (.0038068)
0 0 04 0.0274 *** 0.0260 *** 0.0207 ***
(.0055815) (.005059) (.0044807)0 0 0
5 0.0321 *** 0.0306 *** 0.0259 ***(.0060391) (.0055506) (.0050409)
0 0 06 0.0349 *** 0.0336 *** 0.0286 ***
(.006438) (.006009) (.0055336)0 0 0
7 0.0360 *** 0.0354 *** 0.0305 ***(.0067753) (.0064005) (.005986)
0 0 08 0.0358 *** 0.0350 *** 0.0304 ***
(.0070459) (.0067378) (.0063777)0 0 0
9 0.0342 *** 0.0335 *** 0.0289 ***(.0072988) (.0070088) (.0067148)
0 0 010 0.0342 *** 0.0328 *** 0.0280 ***
(.0074807) 0.0072585 (.0069831)0 0 0
Note:Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.Excludescitieswithapopulationof500,000ormore.
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TableA-9.ValueAddedchangesfollowingestablishmentofFTZ,highpopulationZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 -0.0292 *** -0.0143 *** -0.0053 *(.0071316) (.0052945) (.0030566)
0 0.007 0.0822 -0.0293 *** -0.0158 ** -0.0074
(.0085559) (.0070418) (.0052319)0.001 0.025 0.159
3 -0.0251 ** -0.0130 -0.0061(.0097001) (.0084418) (.0069566)
0.01 0.123 0.3774 -0.0182 * -0.0062 -0.0010
(.0107394) (.0095598) (.0083342)0.09 0.519 0.904
5 -0.0117 0.0009 0.0059(.0115918) (.0105699) (.0094298)
0.312 0.935 0.5296 -0.0063 0.0048 0.0104
(.0122427) (.0113997) (.0104229)0.604 0.674 0.32
7 -0.0010 0.0106 0.0145(.0128219) (.0120335) (.0112401)
0.94 0.377 0.1978 0.0013 0.0146 0.0182
(.0133242) (.0125991) (.0118663)0.922 0.248 0.125
9 0.0016 0.0159 0.0208 *(.0137242) (.0130404) (.0123828)
0.907 0.224 0.09310 0.0028 0.0169 0.0222 *
(.0141282) (.0134331) (.012819)0.843 0.209 0.083
Note:Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.Onlycitieswithapopulationof500,000ormore.
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2. Differenceindifferenceestimation
Next,weemploya“differenceindifference”(DID)estimationtechniquetoformallyinvestigatethecausalrelationshipbetweentheestablishmentofanFTZandeconomicactivityinthebroaderZEC.DIDisausefulestimationapproachinthiscasebecauseitallowsustocompareeconomiccommunitiesthatareotherwisesimilarexceptfortheFTZtothosewithanFTZ.TheDIDapproachallowsustomakeuseofthelongitudinaldatafromtheFTZeconomiccommunities(the“treatmentgroup”)andotherwisesimilarareasthatdonotcurrentlyhaveanFTZnearby.
TheDIDapproachisidealforthenatureofthisstudyandotherresearchershaveusedittoassessthefocusedeconomiceffectsonlocaleconomiesofpolicychanges.16Forinstance,CardandKrueger(1994and2000)useDIDtoexaminetheeffectsofaraiseintheminimumwageonlow-skillemployment.Theycomparedfast-foodindustrydatainNewJerseytoPennsylvania.Hastings(2004)usedDIDtoexaminetheimpactongaspricesofthetakeoverofaCaliforniaindependentgasstationbyaverticallyintegratedfirm.Hastingsfocusedongaspricesatstationswithinamileofthefirmthatwasacquired,comparedtothosethathadnostationspreviouslyownedbytheacquiredfirm.Thus,DIDcanbeusedtoexamineveryspecificinformationforveryspecificlocalcommunities.
UsingtheDIDapproach,wecomparehoweconomicactivity(employment,wages,valueadded)changedinthe“treatmentgroup”–aneconomiccommunitythatincludesanoperatingFTZ--tochangesineconomicactivityinthe“controlgroup”(anotherwisesimilareconomiccommunityinthatsameregionofthecountrythatdoesnotyethaveanFTZnearby)duringthesametimeperiod.Thisallowsustoobtainanappropriatecounterfactualtoestimateacausaleffect.WecontrolforregionaleconomicdifferencesbyusingtimezonestodividetheFTZsintofourregions(Pacific,Mountain,Central,andEastern).17TheeconomiccommunitywiththemostrecentlyestablishedFTZineachregionwasusedasthecontrolgroupforthatregion,fortheperiodoftimebeforetheFTZwasestablished.ThecontrolgroupswereFTZ276,KernCounty,CAforthePacificzone;FTZ280,AdaandCanyonCounties,ID,fortheMountainzone;FTZ279,TerrebonneParish,LA,fortheCentralzone;andFTZ284,GeneseeCounty,NY,fortheEasternzone.
16 SeeWooldridge,J.(2012)andImbensandWooldridge(2007).Inthecasewherethesameunitswithinagroupareobservedineachtimeperiod,theaveragegaininthesecond(control)groupissubtractedfromtheaveragegaininthefirstgroup(thetreatmentgroup,theFTZgroup).Thisremovesbiasesinsecondperiodcomparisonsbetweenthetreatmentandcontrolgroupthatcouldbetheresultfrompermanentdifferencesbetweenthosegroups,aswellasbiasesfromcomparisonsovertimeinthetreatmentgroupthatcouldbetheresultoftrends.17 TheAlaskaFTZsareincludedinthePacificregion;theoneHawaiiFTZwasestablishedpriorto1976sowasnotincludedinourdataset.
33
Thus,wehavetwoareasthathavethesameeconomicgeographyandinfrastructurecharacteristics,andthesetwoareasareinthesameregionofthecountry.Atthebeginningoftheperiod,theonlydifferenceisthatoneareahaswithinitanestablishedFTZandtheotherdoesnot.HaditnotbeenfortheFTZ,wewouldexpecteconomicactivityinthetwoareastochangeinroughlythesamemanner.Thedifferenceindifferenceapproachessentiallycomparesthedifferenceinthechangesintargetedeconomicvariablesofthesetwoareas.So,forexample,iftheestablishmentofanFTZhadapositiveeffectonemploymentinanarea,thenwewouldexpectthechangeinemploymentinthatFTZareaovertimetoexceedthechangeinemploymentinanotherwisesimilarareaoverthesameperiod.
FigureA-6depictsthedifference-in-differenceestimationapproach.Aftertheintervention,inthiscasetheestablishmentofanFTZ,thedifferencebetweentheobservedoutcomeinthecontrolgroupandtheobservedoutcomeinthetreatmentgroupisattributedtotheintervention(theFTZ).TheFTZeffectisrepresentedbytheyellowshadedarea.
FigureA-6.Depictionofdifference-in-differenceestimationapproach
Constantdifferenceinoutcome
BeforeFTZestablishment After FTZestablishment date
Observedoutcometrendincontrolgroup
Constantdifferenceinoutcome
Unobservedcounterfactualoutcometrendintreatment
Observedoutcometrendintreatmentgroup
Outcome
EffectofFTZ
Source:See IntroductoryEconometrics:AModernApproach,5thedition, byJ.Wooldridge,CengageLearning,2012.
34
Weestimatethefollowingequation:
𝑑𝑦!,!! = 𝛾! + 𝛿! + 𝛽!!"
!!!𝑥!,! ∗ 𝐷𝑅1+⋯+ 𝛽!
!"
!!!𝑥!,! ∗ 𝐷𝑅4+ 𝜀!,! (2)
where𝑦!,!! isthej-yearchangeinFTZi’seconomicactivity(employment,wages,valueadded).Forexample,welookatzerolag(theyearestablished),one-yearlag(oneyearpriortoyearestablished),andtwo-yearlag(twoyearspriortoyearestablished).𝛾! isthefixedeffectforFTZareai,and𝛿!istheyearfixedeffect.x(i,k)takesonavalueofonekyearsaftertheFTZwasestablishedandzerootherwise.DR1isaregionalindicatorthattakesonvalueonewhentheregionofFTZiislocatedinregion1andzerootherwise.ThesameappliesforDR2,DR3,andDR4.TheFTZareawiththemostrecentyearestablishmentdateforitsFTZisthecontrolgroupforeachregion.
Consideremploymentastheeconomicactivityofinterest.ThenweidentifytheeffectoftheFTZareaonemploymentbycomparingthechangeinemploymentfromtheestablishmentyeardatetokyearsout(wherek=1,2,3,..,10),toemploymentchangesinthatsametimeperiodinthecontrolgroup.Theunderlyingassumptionisthat,controllingforotherdeterminantsofemployment,employmentwouldhavemovedinparalleltotheareainthatregionthatbecomesanFTZatafuturedate,intheabsenceoftheFTZbeingestablished.Thus,anydivergenceinemploymentchangesaftertheFTZestablishmentdateisattributabletotheFTZbeingestablished.
TheDIDresultsreflectthedifferencebetweenchangesinthetreatmentgroupandcontrolgroupoveracertaintimeperiod,wherethattimeperiodbeginswhenthetreatmentgroupbecomesanFTZ(andthecontrolgroupisnotyetanFTZ).Thisapproachallowsustocomparetwootherwisesimilareconomiccommunitiesinwhichtheonlymaindifferenceisthatoneofthem(thetreatmentgroup)isanFTZandtheotherisnot.
a. DIDemploymentresults
TablesA-10andA-11reporttheeconometricestimationresultsfromequation(2)forallZECs,andsmall-andmedium-sizedZECs,respectively.AninsufficientnumberofobservationsforhighpopulationZECsbyregionpreventedusfromisolatingtheDIDeffectsinhighpopulationZECs.
TheseresultssuggestthatthepptchangeinemploymentinaZECduetotheestablishmentoftheFTZwithintheZECispositiveandstatisticallysignificanteight,nineand10yearsfromtheFTZestablishmentdate.SinceourdatasetincludestheentirepopulationofFTZs,someeconomicmeaningcanbeascribedtoalloftheestimatedcoefficients.Notwithstanding,thestatisticallysignificantemploymenteffectsappearinyearseight,nineand10.Thatis,employmentchangeswere,onaverage,0.14pptgreaterinZECseightyearsout,0.17pptgreaternineyearsout,and0.19pptgreater10yearsout.
35
Toputtheseresultsincontext,considertwoeconomiccommunitiesovera10-yearperiod.OneincludesanFTZatthebeginningofthisperiodandtheotherdoesnothaveanFTZwithinitsboundariesduringthisperiod(butdoesgetonelater).SupposetheeconomiccommunitywithouttheFTZexperienceda4.8percentincreaseinemploymentoverthisperiod.Then,theeconomiccommunitywiththeFTZwouldbeexpectedtoexperiencea5.0percentincreaseinemploymentoverthissameperiod.
Thereisevidenceofasmallanticipationeffect,astheemploymenteffectispositive,slightlylarger,andstatisticallysignificantwhentheyearbeforeestablishmentisusedasthebenchmark.
WefindthatforallZECs,andforsmall-andmedium-sizedZECs(areaswithpopulationlessthan500,000),theemploymenteffectoftheFTZissmallbutpositive,andreachesarateof0.2pptintheninthand10thyearsout.Thatis,nineto10yearsaftertheFTZisestablished,theemploymentchangeintheZECis0.2pptgreatercomparedwithotherwisesimilareconomiccommunities,andthatdifferenceintheemploymentchangecanbeattributedtotheFTZ.
36
TableA-10.Employmenteffects,allZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 0.0462 0.0494 0.0113(.0626979) (.0482117) (.0279329)
0.462 0.526 0.6862 0.0635 0.0462 0.0253
(.0765668) (.0636178) (.0485753)0.407 0.468 0.602
3 0.0873 0.0698 0.0471(.0871495) (.0751927) (.0627859)
0.317 0.354 0.4534 0.1037 0.0862 0.0633
(.0962604) (.0847377) (.0742148)0.282 0.31 0.394
5 0.1119 0.0947 0.0718(.1066974) (.0950265) (.0860008)
0.295 0.319 0.4046 -0.2337 -0.0858 -0.0129
(.1670433) (.1513092) (.138555)0.163 0.571 0.926
7 -0.2591 -0.1118 -0.0414(.1745329) (.1610283) (.149446)
0.139 0.488 0.7828 0.1001 0.1482 0.1360 *
(.102901) (.0965023) (.0721765)0.331 0.125 0.091
9 0.1296 0.1787 * 0.1683 *(.1057315) (.099969) (.0952736)
0.221 0.075 0.07810 0.1501 0.1996 * 0.1904 *
(.109162) (.103701) (.0999868)0.17 0.055 0.058
Note:Standarderrorsareclusteredattheregionallevel.Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.
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TableA-11.Employmenteffects,small-andmedium-sizedZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 0.0461 0.0306 0.0109(.063768) (.0494478) (.0287645)
0.47 0.536 0.7052 0.0638 0.0466 0.0253
(.0776029) (.0648183) (.0496135)0.411 0.473 0.611
3 0.0887 0.0713 0.0481(.0878286) (.0758818) (.063469)
0.313 0.348 0.4494 0.1066 0.0892 0.0658
(.0965018) (.0847852) (.0743225)0.27 0.294 0.377
5 0.1171 0.1001 0.0766(.1066602) (.0946504) (.0857203)
0.273 0.291 0.3726 0.0633 0.1104 0.0978
(.0950275) (.0857962) (.0785693)0.505 0.199 0.214
7 0.0636 0.1097 0.0980(.0992988) (.0914789) (.0849792)
0.522 0.231 0.258 0.1071 0.1553 0.1426 *
(.1029707) (.0966323) (.0815584)0.299 0.109 0.12
9 0.1369 0.1861 * 0.1751 *(.1057923) (.100209) (.0959031)
0.197 0.064 0.06910 0.1574 0.2069 ** 0.1970 *
(.1093591) (.1041109) (.1009418)0.151 0.048 0.052
Note:Standarderrorsareclusteredattheregionallevel.Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.Excludescitieswithapopulationof500,000ormore.
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b. Differenceindifferencewageresults
TablesA-12andA-13reporttheFTZeffectsonwagechangesfromequation(2)forallZECs,andsmall-andmedium-sizedZECs,respectively.FiguresA-9andA-10plottheestimatedcoefficients.
TheresultssuggestthatforallZECs,onaverage,theFTZeffectonZECwagesispositiveandsignificantstartingataroundtheeighthyearout,andisontheorderof0.28to0.34ppt,andpersistsatleast10yearsout.Whenwefocusonlyonsmall-andmedium-sizedZECs,theFTZeffectonwagesispositiveandstatisticallysignificantstartingaroundthesixthyearoutandisontheorderof0.25to0.35ppt,andlastsatleast10yearsout.
39
TableA-12.Wageeffects,allZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 -0.0059 -0.0107 -0.0094(.0897836) (.0679619) (.0389547)
0.947 0.875 0.8092 0.0004 -0.0064 -0.0057
(.1078823) (.0898931) (.0667795)0.997 0.943 0.932
3 0.0211 0.0122 0.0109(.1215962) (.1072078) (.0878514)
0.863 0.909 0.9014 0.0333 0.0237 0.0203
(.130035) (.1191675) (.1031554)0.798 0.842 0.844
5 0.0239 0.0148 0.0106(.1369567) (.1293116) (.118874)
0.862 0.909 0.9296 -0.3512 * -0.1958 -0.1195
(.2085137) (.1965142) (.181426)0.093 0.32 0.511
7 -0.3943 * -0.2382 -0.1634(.2188424) (.2061517) (.1913218)
0.073 0.249 0.3948 0.3939 *** 0.3197 ** 0.2871 **
(.0785186) (.1240531) (.1150799)0 0.01 0.013
9 0.4067 *** 0.3510 *** 0.3203 ***(.081254) (.1288284) (.1214177)
0 0.007 0.00910 0.4301 *** 0.3722 *** 0.3418 ***
(.0839767) (.1322537) (.1252831)0 0.005 0.007
Startingpoint
Note:Standarderrorsareclusteredattheregionallevel.Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.
40
TableA-13.Wageeffects,small-andmedium-sizedZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 -0.0070 -0.0111 -0.0101(.091985) (.0701441) (.0402365)
0.939 0.875 0.8032 -0.0004 -0.0065 -0.0060
(.1104944) (.0926366) (.0688448)0.997 0.944 0.93
3 0.0213 0.0132 0.0116(.1241491) (.1099715) (.0900857)
0.864 0.904 0.8984 0.0356 0.0267 0.0230
(.1322021) (.1216086) (.1052358)0.788 0.826 0.827
5 0.0298 0.0213 0.0168(.1381948) (.1309647) (.1204744)
0.829 0.871 0.8896 0.3186 *** 0.2843 ** 0.2466 **
(.0806081) (.1130279) (.1044103)0 0.012 0.019
7 0.3692 *** 0.2852 ** 0.2502 **(.0841528) (.117762) (.1093537)
0 0.016 0.0238 0.3901 *** 0.3276 *** 0.2946 **
(.0869406) (.124376) (.115476)0 0.009 0.011
9 0.3989 *** 0.3596 *** 0.3284 ***(.0898909) (.1290102) (.1219463)
0 0.006 0.00710 0.4148 *** 0.3814 *** 0.3504 ***
(0.0932419) (.1326564) (.1261595)0 0.004 0.006
Note:Standarderrorsareclusteredattheregionallevel.Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.Excludescitieswithapopulationof500,000ormore.
Startingpoint
41
c. Differenceindifferencevalueaddedresults
TablesA-14andA-15reporttheFTZeffectsonvalueaddedchangesfromequation(2)forallZECs,andsmall-andmedium-sizedZECs,respectively.FiguresA-11andA-12plottheestimatedcoefficients.
TheresultssuggestthatforallZECs,onaverage,theFTZeffectonvalueaddedchangeispositiveandstatisticallysignificantstartingataroundtheeighthyearout,isontheorderof0.31to0.37ppt,andpersistsatleastuntilthe10thyearout(TableA-14).Forsmall-andmedium-sizedZECs,theFTZeffectonvalueaddedgrowthispositiveandsignificantstartingaroundthesixthyearoutandisontheorderof0.28to0.41ppt,andpersistsforatleast10yearsout(TableA-15).
Inotherwords,theseDIDestimationresultsindicatethatoncewecontrolforregionaldifferencesandisolatetheFTZeffect,thepptchangeinvalueaddedgrowththatisattributabletotheFTZispositiveandstatisticallysignificant.ThemagnitudeoftheDIDresultsislargerthanthefixedeffects,andreflectstheimportanceofcontrollingforregionaleffectsandcomparinganareawithanewlyestablishedFTZwithanotherwisesimilarareaoverthesametimeperiodandthathasyettohaveanFTZ.
42
TableA-14.Valueaddedeffects,allZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 -0.0602 -0.0287 -0.0192(.0913474) (.0706006) (.0426302)
0.51 0.684 0.6532 -0.0640 -0.0329 -0.0218
(.1106255) (.0929775) (.0714611)0.563 0.724 0.76
3 -0.0560 -0.0219 -0.0115(.1220268) (.1058199) (.0894523)
0.647 0.836 0.8984 -0.0650 -0.0321 -0.0187
(.1326726) (.1172623) (.1024867)0.625 0.785 0.855
5 -0.0860 -0.0528 -0.0408(.1422192) (.1283797) (0.1157861)
0.546 0.681 0.7256 -0.2898 -0.1512 -0.0864
(.2185376) (.1993989) (.1815598)0.186 0.449 0.635
7 -0.3249 -0.1815 -0.1195(.2278216) (.2093733) (.1938166)
0.155 0.387 0.5388 0.3609 *** 0.3752 *** 0.3089 ***
(.0780663) (.0872005) (.0669589)0 0 0
9 0.4047 *** 0.4228 *** 0.3276 ***(.0809655) (.0904805) (.0713919)
0 0 010 0.4653 *** 0.4477 *** 0.3659 ***
(.0807974) (.091153) (.0723851)0 0 0
Startingpoint
Note:Standarderrorsareclusteredattheregionallevel.Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.
43
TableA-15.Valueaddedeffects,small-andmedium-sizedZECs
Numberofyearsafterestablishmentdate
Twoyearsbeforeestablishmentdate
Oneyearbeforeestablishmentdate
Establishmentdate
1 -0.0601 -0.0286 -0.0198(.093531) (.0729697) (.0441938)
0.521 0.696 0.6552 -0.0629 -0.0318 -0.0217
(.1130719) (.0956588) (.0734365)0.579 0.739 0.768
3 -0.0528 -0.0188 -0.0094(.1240231) (.1079807) (.0911017)
0.67 0.862 0.9184 -0.0599 -0.0270 -0.0145
(.1341508) (.1187532) (.1035518)0.655 0.82 0.888
5 -0.0785 -0.0453 -0.0340(.1428246) (.1290071) (.1162031)
0.583 0.726 0.776 0.2631 *** 0.3350 *** 0.2805 ***
(.0803948) (.0848548) (.0709663)0.001 0 0
7 0.2874 *** 0.3461 *** 0.3154 ***(.083901) (.0892809) (.0759925)
0.001 0 08 0.3279 *** 0.3685 *** 0.3361 ***
(.0863235) (.094458) (.0814366)0 0 0
9 0.3783 *** 0.4183 *** 0.3647 ***(.0892613) (.0978819) (.0869793)
0 0 010 0.4500 *** 0.4407 *** 0.4065 ***
(.0887242) (.0983972) (.0880735)0 0 0
Note:Standarderrorsareclusteredattheregionallevel.Thestandarderrorisreportedinparenthesesunderneaththeestimatedcoefficient.Theplimisreportedunderneaththestandarderror.*denotesstatisticalsignificanceatthe10percentlevel,**atthefivepercentlevel,and***attheonepercentlevel.***p<0.01,**p<.05,*p<.10.Excludescitieswithapopulationof500,000ormore.
Startingpoint
44
C. Summaryofeconometricresults
Overall,thefixedeffectsestimationresultsshowthatareas,bothsmall-andmedium-sizedZECsandhighpopulationZECs,experienceapositiveandstatisticallysignificantincreaseineconomicactivityafteranFTZisestablishedintheirarea.Thisholdsforemployment,wages,andvalueadded.Thefixedeffectsresultsarenotindicativeofacausaleffect,butdoserveasausefulcheckonthedatatounderstandhoweconomicactivitychangesintheseareasovertime.
OurprimaryinterestisthechangeineconomicactivitywithinthegeographicareathatcontainsanFTZ,andisattributabletotheFTZ,andweuseadifferenceindifference(DID)econometricapproachtoestimatetheseeffects.Ourresultsshowthatacrosstheboard,intermsofemployment,wages(measuredbytotalwagesandsalarydisbursements),andvalueadded,theeffectsoftheFTZaresmallbutpositiveandstatisticallysignificant.FiguresA-7andA-8plotthestatisticallysignificanteffectsoftheFTZacrossallthreemeasures.
FigureA-7.FTZeffectsongrowthinZECemployment,wages,andvalueadded,averageacrossallZECsaftercommencementofzoneoperations(inpercentagepoints)
0.140.17
0.19
0.290.32
0.340.31
0.33
0.37
year8 year9 year10
Employment Wages Valueadded
45
FigureA-8.FTZeffectsonZECemployment,wages,andvalueaddedgrowth,averageacrosssmall-andmedium-sizedZECsaftercommencementofzoneoperations(inpercentagepoints)
EachbarrepresentstheestimatedeffectoftheFTZintheZECintheyearsfollowingtheestablishmentoftheFTZinwhichtheimpactoccurred.
ForallZECs(figureA-7),theestablishmentofanFTZresultsinabouta0.2percentagepoint(ppt)increaseinemploymentgrowthintheZEC(thatwouldnothaveoccurredotherwise),andthisincreaseoccursroughlynineto10yearsaftertheformationoftheFTZ.FTZsaccountforasmuchasa0.35pptincreaseinwagegrowthfortheZEC,registeringaboutsixtoeightyearsaftertheformationoftheFTZ.TheeffectoftheFTZonvalueaddedgrowthstartsinaroundtheeighthyear,andontheorderof0.31to0.37ppts.
Forthesmall-andmedium-sizedZECs,orareaswithpopulationlessthan500,000,(figureA-8),thewageandvalue-addedoutputimpactsbeginearlier,areatleastaslargeinmagnitude,andlastjustaslong.TheFTZeffectonwagesbeginsstartingaroundthesixthyearoutandisontheorderof0.25to0.35ppt,andlastsatleast10yearsout.TheFTZeffectonvalue-addedalsobeginsaroundthesixthyearoutandisontheorderof0.28to0.42ppt,andlastsatleasttenyearsout.Theemploymentimpactforsmall-andmedium-sizedZECsbeginsintheeighthyear,andreachesarateof0.2pptintheninthand10thyearsout.Thatis,nineto10yearsaftertheFTZisestablished,theemploymentchangeintheZECis0.2pptgreatercomparedwithanotherwisesimilareconomiccommunity,andthatdifferenceintheemploymentchangecanbeattributedtotheFTZ.
Toputtheseresultsintocontext,employmentintheBuffalo,NewYorkZECis762jobshigherthanitwouldbeintheabsenceoftheFTZinthatZEC;inMilwaukee,WI,anadditional1,290jobsareowedtothepresenceoftheFTZinthatZEC,andinCleveland,OH,anadditional1,571jobsexistbecauseoftheFTZ.AcrossallZECs,andextrapolating,
0.140.18
0.20
0.25 0.25
0.290.33
0.35
0.280.32
0.340.36
0.41
year6 year7 year8 year9 year10
Employment Wages Valueadded
46
ouranalysissuggestthattheestablishmentoftheFTZinaZECresultedinatotalof118,287additionaljobsacrosstheallZECscombined.
ThemainlimitationwiththeDIDapproachistheselectionofthecontrolgroup.TheDIDresultsrelyontheassumptionofcommonshockstothecontrolandtreatmentgroupatthetimeoftheFTZestablishmentandafterwards,knownastheparalleltrendassumption.Thatis,theDIDapproachassumesthatanyshocksoreventsthatoccurredatthetimeoforaftertheFTZequallyaffectedthetreatmentandcontrolgroups.Aviolationoftheparalleltrendassumptioncanresultinbiasedestimationofthecausaleffects.Ideally,theonlydifferencebetweenthecontrolandtreatmentgroupswouldbetheestablishmentoftheFTZ.Inpractice,suchagroupcanbedifficulttofind.Thereisnodefinitivestatisticaltestfortheparalleltrendassumption;however,thelargenumberofobservationsinourcontrolgroupcontributestotheprecisionofourestimatesandislikelyacounterweighttoanyweaknessintheparalleltrendassumption.
ThisreportcontributestotheresearchontheeconomiceffectsofFTZsontheeconomiccommunitiesinwhichtheyareestablished.FutureresearchshouldaimtobetterunderstandtheunderlyingmechanicsofhowFTZ-relatedactivityspurseconomicactivityinthegreatersurroundingarea.Forinstance,firm-leveldatathatincludesinformationonthesupplychainofthosefirmsinandaroundtheFTZwouldbehelpfulinunderstandingtheselinkages.
48
BMWManufacturing,Spartanburg,SouthCarolina(FTZ-38):FTZbenefitsmultiplythroughthestateMotorvehicleandpartsproducersaremajorusersoftheU.S.FTZprogram,usedbysuchcompaniesasFord,GeneralMotors,Mercedes-Benz,Honda,Hyundai,Nissan,Tesla,Toyota,VolkswagenandVolvo.Thesectorfacesinvertedtariffsforautomobiles:U.S.tariffsonpartsrangeupto4percent,whiletariffsonfinishedautomobilesare2.5percent.Thus,itmakessensetousetheFTZprogramtoimportcertainpartsandassemblethefinishedcarsintheUnitedStates,enteringthemforU.S.saleatthe2.5percentdutyrate.AccordingtotheForeign-TradeZonesBoard,themotorvehicleandpartscompaniesaccountedfor20.5percentofallforeign-statusgoodsreceivedintoFTZsin2017.18 BMWbrokegroundonitsfirstAmericanautomobilefactoryin1992inGreer,SouthCarolina,andthefirstcarsrolledoffthelinein1994.Foreign-tradezonestatusfortheoperationwasakeyingredientinthefirm’sstart-upoperations.InitsapplicationforanFTZsub-zone,BMWprojecteditwouldemploy1,900SouthCarolinianstoproduceupto209,000compactautomobiles,which,untiltheplant’sstartup,wereimportedfromGermany.ThefinishedautoswouldbesoldintheUnitedStatesandexported.BMWestimatedthatupto50percentofthefinishedauto’smaterialvaluewouldconsistofforeign-sourcedpartsandmaterialsthatwouldbenefitfromFTZprocedures.Savingsfromthesebenefits,accordingtoBMW’sapplication,wouldhelpimprovetheplant’sinternationalcompetitiveness.19Subzonestatuswasapproved(nearlyoneyearlater).20BeforeBMWcametoSpartanburg,theareawasaghosttownofformertextileplantsandroughly60,000lostmanufacturingjobs.BMW’sinvestmentinSouthCarolinachangedallthat.Itscommitmenttotheareahasgrownovertime,fromaninitial
18 Foreign-TradeZonesBoard,op.cit.,AppendixAandAppendixB.19 U.S.DepartmentofCommerce,“Foreign-TradeZone38–SpartanburgCounty,SC;ApplicationforSubzone,BMWManufacturingCorporationPlant,(autos)SpartanburgCountry,SouthCarolina,”Docket32-93,58FederalRegister,July29,1993,http://ita-web.ita.doc.gov/FTZ/OFISLogin.nsf.20 DepartmentofCommerce,“GrantofAuthorityforSubzoneStatus;BMWManufacturingCorporation(Automobiles),SpartanburgCounty,SC,Greenville-SpartanburgCustomsPortofEntry,”OrderNo.697,FederalRegister,July8,1994,http://ita-web.ita.doc.gov/FTZ/OFISLogin.nsf.
BMWManufacturing
U.S.Headquarters:Spartanburg,SouthCarolina
Business:Automobilemanufacturer
ValueAddedinSC:$6.3billion
Employees:10,000inSouthCarolinadirectly;36,285directlyandindirectly
BMWManufacturing
U.S.Headquarters:Spartanburg,SouthCarolina
Business:Automobilemanufacturer
ValueAddedinSC:$6.3billion
Employees:10,000inSouthCarolinadirectly;36,285directlyandindirectly
49
investmentof$600milliontoatotalofnearly$9billionovertheensuing24years.21Today,BMWemploysmorethan10,000workersandproducesapproximately400,000vehiclesannually,morethan70percentforexportto140globalmarkets(withChinathelargestforeigndestination,followedbyGermany).InputsimportedbyBMWduty-freeundertheFTZprogramsupplementinputsfrom235U.S.suppliers,40ofwhomareinSouthCarolina.Thirty-sixofSouthCarolina’s46countiesnowhaveatleastoneautomobile-relatedmanufacturer.Moreover,someSouthCarolinabusinessleadersbelievethatBMW’swillingnesstobuildhigh-endcomplicatedcarsinSouthCarolinasignaledthatcompanieslikeBoeing,Mercedes-BenzVans,VolvoCars,HondaandHaierGroupcouldalsooperatetheresuccessfully.22AccordingtoBMW,“Asaconsequenceofthisinvestment,BMWdirectlyandindirectlyadds$6.3billionannuallytoSouthCarolina’seconomyandleadstotheemploymentof36,285peoplethere.TheoverallfootprintintheU.S.isevenlarger,withvalueaddedbyBMWof$15.77billionandemploymentof120,855.Ineachcase,thisincludesboththedirectcontributionofBMWandthecontributionviapurchasesofBMWanditsemployeesthatwouldnotexistifBMWwerenotestablishedintheUnitedStates.A2017studybytheUniversityofSouthCarolinafindsthatforevery10jobsthataredirectlygeneratedataU.S.BMWfacility,anadditional90jobsarecreatedelsewhereintheU.S.economyasadirectresultoftheseBMWjobs.23EvenaftersomanyyearsofincreasedengagementintheSouthCarolinaandU.S.economies,keepingproductioncostsfreeofimportandexportbarriers(liketariffsandfees),asaffordedbyFTZprocedures,remainsimportanttoBMWtomaintainitscompetitivenessinexportmarkets.BMWreliesonFTZstatusfordutydeferral,dutyeliminationonexports;dutyreductiononinputsrelativetofinishedautomobiles;loweradministrativecostsfrom,forexample,MPFbundling;lowerinsurancecosts;andunlimitedtimeforstorage.24ButforFTZcostsavings,thecostsofimportedautomobilecomponentswouldbehigher.“[H]ighertariffsonimportedcomponentswilldirectly
21 LisaErrionSaums,BMWGroup,SubmissiontotheU.S.DepartmentofCommerce,DocketNo.DOC-2018-002:CommentsofBMWGrouponSection232AutoInvestigation,June28,2018,http://www.goupstate.com/assets/pdf/NC178273.PDF.22 DavidWren,“Economicdriver:BMW’simpactonSouthCarolina’smanufacturinggrowth,psychehasbeenimmeasurable,”PostandCourier,June17,2017,https://www.postandcourier.com/business/economic-driver-bmw-s-impact-on-south-carolina-s-manufacturing/article_29b50b10-51e4-11e7-b3dc-83f7d1a3d4c0.html.23 Saumsop.cit.24 SouthCarolinaManufacturing,“ForeignTradeZoneKeyPartOfSouthCarolinaStrategy,”September15,2015,https://www.southcarolinamanufacturing.com/foreign-trade-zone-key-part-of-south-carolina-strategy/.
50
underminethecompetitivenessofvehiclesexportedfromtheUnitedStatesandrelativelystrengthenotherproductionlocation[s]inrelationtotheU.S...[This]wouldincreasethecostsofexportingpassengercarstothesemarketsfromtheUnitedStatesanddeterioratethemarketaccessforBMWinthesejurisdictions,potentiallyleadingtostronglyreducedexportvolumesandnegativeeffectsoninvestmentandemploymentintheUnitedStates.GiventheveryhighexportshareofourU.S.production,thisnegativeimpactcouldalsoovercompensateanypositiveeffectofforceddeeperlocalizationofproductssupplyingtheU.S.domesticmarket.”25
25 Saums,op.cit.
51
ExxonMobilCorporation,BatonRouge,Louisiana(FTZ-154):Zonebenefitsareanetpositivefortheregion
Oil/petroleumproductsaccountforthelargestshareoftotalforeign-statusproductsbroughtintoFTZs.In2017,theyrepresented27.1percentofallforeignstatusproductsreceivedintoU.S.FTZs.26Companiesusethezonestoprocesscrudeoilintogasolineandjetfuel,chemicalsandplastics.CrudeoilimportsareassessedU.S.tariffsof5.25centsto10.5cents/barrel,dependingontheAPIcontent.ManyoftheproductsmadefromcrudecanbeimportedintotheUnitedStatesatlowerduties.Additionally,theseby-productscanbeexportedwithoutpayingthecrudedutiesatall.Forexample,crudeoilcanbeimportedwithoutpaymentofdutyintoanFTZ,processedintojetfuelinthatFTZ,transferredin-bondtoanairportinanotherFTZ(e.g.,anairport),andexportedinthefueltankofaplaneboundforaninternationaldestination.ExxonMobilisaleadingexampleofacompanymakinguseofFTZstoimportcrudepetroleumandprocessitintodownstreamproducts,mainlyfordomesticuseintheUnitedStatesbutalsoforexport.IthasthreeFTZsubzonesinoperation,twoinTexas(BaytownandBeaumont)andoneinLouisiana.InBatonRouge,Louisiana(FTZ-154),ExxonMobiloperatesamainrefinerycomplexinEastBatonRougeParish,apetrochemicalplantinEastBatonRougeParish,aMarylandTankFarmstoragefacilityandplasticsplantinEastBatonRougeParish,alubricantsplantinWestBatonRougeParish,anAnchorageTankFarminWestBatonRougeParish,andtheSorrentoSaltDomeinAscensionParish.Exxonoperatesthesixsitesasanintegratedrefinery/petrochemicalcomplex.ExxonMobilreceivedapprovalforitssubzoneactivitiesinFTZ-1541996.Theoilrefineryandpetrochemicalcomplexthenemployed4,000peopletoproducefuels(e.g.,gasoline,jetfuel,distillates,residualfuels,andnaphthas)andpetrochemicals.Initsapplication,Exxonnotedthatabout40percentofthecrudeoil(85percentofinputs),andsomefeedstocksandmotorfuelblendstocksusedinproducingfuelproductsweresourcedabroad,andzoneprocedureswouldexempttherefineryfromCustomsdutypaymentsontheforeignproductsusedinitsexports.Ondomesticsales,thecompanywouldbeabletochoosethefinishedproductdutyrate(nonprivilegedforeignstatus,NPF)oncertainpetrochemicalfeedstocksandrefineryby-products(whichwouldbeduty-free)andsaveonU.S.dutiesoncrudeoil.Foreignmerchandisewouldalsobeexemptfromstateandlocaladvaloremtaxes.
26 Foreign-TradeZonesBoard,op.cit.,AppendixAandB.
ExxonMobilCorporation
U.S.Headquarters:Irving,Texas
Business:Petroleum,gasandchemicalmanufacturer
Employees:6,600intheFTZ
ExxonMobilCorporation
U.S.Headquarters:Irving,Texas
Business:Petroleum,gasandchemicalmanufacturer
Employees:6,600intheFTZ
52
Today,eventhoughmoreU.S.-sourcedoilisusedbyExxonMobilthaninthepast,theFTZprogramcontinuestoprovidebenefitsthataccruetothecompanyandtheregion.ExxonMobilemploysmorethan6,600employeesandcontractorsintheBatonRougearea,withpayrolltotaling$491million.ExxonMobil’soperationsinthezoneanditsrippleeffectsthroughthelocaleconomyovertheyearshavebeensignificantlypositive.Accordingtoarecent(2017)study,oneoutofeveryeightjobsintheBatonRougeareacanbetracedbacktoExxonMobil.27Everyyear,ExxonMobilconductsmaintenanceactivitiesonequipmentinitsfacilities,hiringemployeesandlocalcontractorsandwithrippleeffectsfromequipmentrental,supplypurchases,taxespaidonworkandmaterials,andservicessuchasfoodandlodgingformaintenancelabor.Thecompanyestimatesthatthisannualworksupportsasmanyas1,600contractorswithanassociatedpayrollof$61.7million.DespitetheexemptionsfromstateandlocaladvaloremtaxesmadepossiblebytheFTZ,ExxonMobil’sactivitiesintheBatonRougegeneratemillionsinannualstateandlocaltaxrevenue,frompropertytaxes($33.2millioninEastBatonRougealonein2015),todirectsalestaxes($26.3millioninEastBatonRouge),tootherstateandlocaltaxes(morethan$100million,aftercreditsandrebates).
27 ExxonMobilBatonRougeEconomicImpactReport2017,https://cdn.exxonmobil.com/~/media/global/files/us-refineries/economic-impact-report-2017.pdf.
53
YamahaMotorManufacturingCorporationofAmerica,Newnan,Georgia(FTZ-26):Zoneproductionbenefitsspreadtothegreatereconomiccommunity
YamahaMotorCorporationUS(YMUS)producesall-terrainvehicles(ATVs),golfcarts,side-by-sidevehicles,andpersonalwatercraftatthreeYamahaMotorManufacturingCorporationofAmerica(YMMC)plantsinanFTZsubzoneinNewnan,Georgia.YMUShascorporateofficesinCypress,California,andKennesawandMarietta,Georgia,andsalesanddistributionofficesthroughouttheUnitedStates.
YMMChasusedAtlanta-basedFTZbenefitstosupportitsexportsofgolfcartsandU.S.andexportsalesofpersonalwatercraftsince1989;benefitsforproductionofATVsintheNewnansubzonewereaddedin1998.In2011,totakeadvantageofmoreefficientproductionthatwouldresultfromacentralizedlocation--includingonethatbenefitsfromtheefficienciesofferedbytheFTZprogram--YMMCbegantotransferproductionofnearlyallitsmid-andlarge-engineATVsmodelstotheUnitedStatesfromoverseasfacilitiesintoitsFTZfactoryinNewnan.Themove,completedin2013,increasedemploymenttheretomorethan1,250,up150sincetheATVproductiontransferbeganin2011,alongwithjobsatitsover100U.S.basedsuppliercompanies.Current2018employmentattheNewnanplantsisnearing1,600.About30percentofYMMC’sproductioninthezoneisexported,andtheFTZprogramsavesthecompanydutiesonimportedpartsthatareusedbythoseworkerstomanufacturetheexportedvehicles.Inaddition,theadministrativeeaseofweeklycustomsentryanddirectdeliveryofitsimportedcomponentsspeedupthesupplychainandimprovethecompany’sabilitytoreacttocustomdemandaroundtheworld.
YMUS,andespeciallyitsproductionfacilityintheNewnanFTZ,havehadastrongpositiveimpactonthebroadereconomiccommunity,particularlyinGeorgia.Employmentgrowthhasbeenparticularlysignificant.Today,YMUSdirectlyemploysabout3,400workersintheUnitedStates,over2,000oftheminGeorgiaaloneandabout1,600initsFTZoperationsinNewnan,Georgia.28(Thiscomparestoapproximately2,500whenthecompanybeganoperationsinitsFTZin1989.)Thecompanytodaysupportsmorethan30,000additionalU.S.jobsoverall,includingthoseatitssupplieranddealerpartners.
28 YamahaCelebrates30YearsofU.S.Manufacturing,”MotorSportsNewswire,June11,2018,https://motorsportsnewswire.com/2018/06/11/yamaha-celebrates-30-years-u-s-manufacturing/.
YamahaMotorManufacturingCorp.ofAmerica
U.S.Operations:Newnan,GA
Business:Sportsvehicles
Employees:about1,600inFTZ
YamahaMotorManufacturingCorp.ofAmerica
U.S.Operations:Newnan,GA
Business:Sportsvehicles
Employees:about1,600inFTZ
54
Inaddition,theNewnanfactoriesspendmorethan$170millionannuallywithmorethan100U.S.partssuppliers.29About30percentofthepartsandcomponentsusedtomakeitsproductsintheNewnanFTZcomefromGeorgia-basedsuppliers;another20percentcomesfromotherU.S.-basedsuppliers.By2018,Yamahahadinvestedmorethan$354millioninitsNewnanfacility,30spendingthathasrippledthroughthelocalcommunityandbeyond.
ThesavingsYMMCrealizesfromFTZbenefitsfeedbacktothelocalcommunityinotherways.YMMCfundsscholarshipsforhighschoolstudents,andsupportslocalteachersandschoolenvironmentalprojects,aswellasyouthcharacterdevelopmentprogramslikethe(BoyandGirlScoutsand4H,amongothers)forexample.Moniesnotspentinefficientlyprocessingimportentriescanbespentinsteadonthesecommunityprojects.
29 “YamahaMovingMajorityofWorldwideATVManufacturingtoU.S.A.,”MotoUSA.com,May18,2011,https://www.prnewswire.com/news-releases/yamaha-moving-majority-of-worldwide-atv-manufacturing-to-usa-122148489.html;LucasCooney,“AllYamahaATVandSxSProductionMovedtoU.S.,”ATV.com,June12,2013,http://www.atv.com/blog/2013/06/all-yamaha-atv-and-sxs-production-moved-to-u-s.html.30 “YamahaCelebrates30YearsofU.S.Manufacturing,”MotorSportsNewswire,June11,2018,https://motorsportsnewswire.com/2018/06/11/yamaha-celebrates-30-years-u-s-manufacturing/.
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HellyHansenU.S.Inc.,Tacoma,Washington(FTZ-86):FTZskeepeconomicactivityintheUnitedStatesWarehouseanddistributionactivitiesrepresentasignificantshareofFTZactivity.In2017,54percentofforeignstatusinputswereplacedinwarehouseordistributioncenters.31Someofthatisexported;therestislaterenteredintoU.S.consumption.TheproductsmostcommonlyadmittedintoFTZwarehouse/distributioncentersarevehicles,consumerelectronics,andconsumerproducts.HellyHansenimportsspecialtywater-resistantcoldweatherapparelforprofessionalsworkinginextremeenvironments.ItimportsmostofthisapparelfromsuppliersinAsia.TheNorwegiancompany,recentlysoldtoaCanadiancompany,hasastrongbrandpresenceinCanada;theU.S.marketisstillsmallbutstartingtogrow.Thus,whenthecompanyin2010undertookareassessmentofitsNorthAmericanwarehouselocations,itmadesensetoleantowardsconsolidatingoperationsatitsexistingwarehouseinBritishColumbia,Canada.
However,thesavingsaffordedbytheU.S.Foreign-TradeZoneprogramtippedthescalestothecompany’sU.S.warehouselocationinAuburn,Washington.ItformallyactivatedanFTZatitsAuburnwarehouse,whichwaswrappedintothePortofSeattleFTZ(#5)in2011.Growthfollowedandby2016,HellyHansonneededabiggerwarehouse,whichitfoundinthePortofTacoma(FTZ86),whereitmovedconsolidatedoperations.
Approximately55percentofHellyHanson’simportsintoTacomaarere-exportedtoCanada.HellyHansonpaysnoU.S.importdutiesonthoseproducts.
ItdoespayU.S.importdutiesonproductsdestinedfortheU.S.market,whentheyexittheFTZforU.S.sale.Butwhiletheywaitatthewarehouse,thecompanysavesmoneyfromdeferredduty(thevalueoftightercashflowandreducedinterestcosts)andreducedprocessingfees.HellyHansonestimatesthatin2017/2018(June/June),itsaved$64,458thankstodeferreddutypayments,and$128,524thankstobundlingofentriesthatresultinsavingsofmerchandiseprocessingfees.Onseveraloccasionswhenithadtodestroydamagedgoods,thecompanydidnothavetopayduties(anotherbenefitoftheFTZprogram),realizingdutysavingsintheamountof$5,625immediatelyin
31 Foreign-TradeZonesBoard,op.cit.,AppendixA.
HellyHansonU.S.Inc.
U.S.Headquarters:Tacoma,Washington
Business:Apparelandfootweardistributor
Employees:103inFTZ
ValueofFTZSavings:$200,000annually
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2017/18,thuseliminatingtheneedtorecoverthosedutiesviadutydrawbacklaterandpayfeesassociatedwiththedrawbackprocess.So,theFTZsavedHellyHansonatotalofnearly$200,000duringthatperiod.
CompanyofficialsestimatethatFTZbenefitsarethereasonthecompanyoperatesinTacomaandemploys103workers,upfromabout50in2011.Indirectly,HellyHansonsupportsjobsattheportprocessing400-500containersayear,containersthatwouldotherwisegotoaportinCanada.Estimatedincometotruckersof$67,500wouldalsoevaporatebutfortheFTZsavingsrealizedbyHellyHanson.
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LamResearchCorporation,SanJose,California(FTZ-18)andPortland,Oregon(FTZ-45):FTZbenefitssupporthighU.S.-basedR&DMachineryandequipmentproducersareamongtheleadingusersoftheU.S.FTZprogram.TheyincludeCaterpillar,CincinnatiMilacron,CNHIndustrialAmerica,Deere&Co.,IBMandmanyothers.AccordingtotheForeign-TradeZonesBoard,machineryandequipment(includingelectricalmachinery)companiesaccountedfor9.0percentofallforeign-statusgoodsreceivedintoFTZsin2017.32LamResearchisaglobalsupplierofinnovativewaferfabricationequipmentandservicestothesemiconductormanufacturerslocatedaroundtheworld.Itsproductsandservicesaredesignedtohelpcustomersbuildsmaller,faster,andbetterperformingdevicesthatareusedinavarietyofelectronicproducts,includingmobilephones,personalcomputers,servers,wearables,automotivedevices,storagedevices,andnetworkingequipment.Lammanufactures,assembles,repairs,kits,andwaferfabricationequipmentinFTZsubzones.Italsoconductsglobalpartsdistributiontoitsdepots.ZonesareintheBayAreaCalifornia(FTZ-18,SanJose,since2010)andTualatin,Oregon(FTZ-45,Portland,since2016).Around6,000employeesworkinzone-basedactivities,whichincludenotonlythemanufactureandassemblyofsemiconductorequipmentbutthesparesdistributionnetworkaswell.
ComponentsandmaterialssourcedfromabroadareadmittedfreeofdutyundertheFTZprogram;thosedutieswouldotherwiserangefromzeroto10.7percent.Lamestimatesthatthisprogrambenefitalonesavesthecompanyasignificantamountofitsimportcosts.
Onceimplemented,thezonehashelpedLamtomanagefluctuationsinsupplychainandinternationaltrade.ThezonesavingssupportLam’sR&DactivitiesintheU.S.,wherethecompanydrivesinnovationasahigh-volumeadvancedmanufacturer.
32 Foreign-TradeZonesBoard,op.cit.,AppendixAandAppendixB.
LamResearch
U.S.Headquarters:Fremont,California
Business:Designsandmanufacturesproductiontoolsforthesemiconductorindustry
Employees:~6,000inFTZs
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ProdecoTechnologies,LLC,OaklandPark,FL(FTZ-25):FTZbenefitskeepjobsintheUnitedStates
ProdecoTechisanelectricbicycle(eBike)manufacturerinOaklandPark,Florida.Itmakesbikesthatretailfor$1,000to$5,000each,withmostsalesinthe$1,300-$2,000range.Thecompanyproducesseveralthousandbikesayear.IthasjoinedwithSamsungforbatterysystemsandmarketssomeeBikesundertheSamsungname.Prodeconowemploysasmanyas100peopleinOaklandPark.
Prodecowasfoundedin2008andbegansellingitseBikesintheUnitedStatesin2010.ItreplacedfinishedbikesitproducedabroadwithU.S.productioninFTZ-25in2015,usingzonebenefitstoassemblebikesfromcomponentsimportedfromChina,Japan,Taiwan,Korea,andVietnam,aswellasfromU.S.manufacturers(thehandlebarsareU.S.-made)intheBrowardCountyFTZ.TheFTZprogramenablesProdecoTechtoavoidpayingdutiesonthoseimportsthatcanrangeupto10percent,savingapproximately4percentofthecostofthefinishedeBikes.OnceassembledinOaklandPark,thebikesarethenimportedduty-free–theU.S.tariffrateapplicabletoelectricbicycles.
Thedutyinversionsavingsamounttoabout$40perbike,whichwhenmultipliedbythethousandsofbikesayearsoldbythecompany,amountstoseveralmilliondollarsannually.TheFTZhascontributedsignificantlytothefirm’sabilitytoreduceitscostofgoodssold30percentbelowthatifitscompetition.ThesedutysavingsenableProdecotokeepitsfinishedbikepricescompetitivewithforeign-assembledeBikesthatcanbeimportedintotheUnitedStatesduty-free–andthustomoveforeignbikeproductiontotheUnitedStates.Inotherwords,ProdecocancompetewithimportsusingAmericanworkersdoingtheassemblyandwithaclosereyeonqualitycontrol.
ProdecoTechnologies,LLC
U.S.Headquarters:Oakland,FL
Business:Electricbicycles
Employees:30-100(seasonal),allinFTZ
ProdecoTechnologies,LLC
U.S.Headquarters:Oakland,FL
Business:Electricbicycles
Employees:30-100(seasonal),allinFTZ
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PiramalCriticalCare,Inc.,Bethlehem,PA(FTZ-272):FTZbenefitskeepmanufacturingjobsintheUnitedStates
U.S.pharmaceuticalproducersanddistributorsaremajorusersoftheU.S.FTZprogram.AccordingtotheForeign-TradeZonesBoard,thepharmaceuticalcompaniesaccountedfor3.2percentofallforeign-statusgoodsreceivedintoFTZsin2017.33PharmaceuticalcompaniesusingU.S.FTZsincludecompanieslikeAstraZenecaPharmaceuticals,Bayer,Bristol-MyersSquibb,EliLilly&Co.,GlaxoSmithKline,Pfizer.Theyfaceinvertedtariffs:zerodutiesonfinishedpharmaceuticalmadebyforeigncompetitorsandimportedintotheUnitedStates,buthightariffsonrawmaterialsandactivepharmaceuticalingredientstheymayimporttouseinU.S.produced-pharmaceuticals.34InputcostsinflatedbytariffsofremainingingredientsandrawmaterialsputU.S.-producedpharmaceuticalsatacompetitivedisadvantage,unlesstheyaremadeinFTZswherethedutiesoninputscanbeavoidedwhenthefinisheddrugisenteredintoU.S.commerce.AnotherimportantFTZbenefittoU.S.pharmaceuticalproducersistheabilitytomanufacturepharmaceuticalsintheUnitedStatesthatarenotyetapprovedbytheFoodandDrugAdministration(FDA)forU.S.consumption,butmaybeexported.35PiramalCriticalCare,Inc.isanexampleofaU.S.pharmaceuticalmanufacturerthatcouldnolongercompetepayingtariffsonimportedinputswhileitsforeigncompetitorsshippedfinishedpharmaceuticalstotheUnitedStatesdutyfree.Atthetimeits95employeesmanufacturedanddistributedinhalationanestheticsfromchemicalsandothermaterialssourcedfromabroad,primarilyIndia.Theseinputsrepresented23percentofthevalueofthefinishedproductandfaceddutiesofupto5.5percent.
ItappliedforandreceivedFTZbenefitsin2012.Piramalestimatedthat40percentofthefinishedpharmaceuticalswouldbeexportedfromtheFTZtomorethan100
33 Foreign-TradeZonesBoard,op.cit.,AppendixAandAppendixB.34 ThisdisadvantageforU.S.-producedpharmaceuticalsreallyescalatedfollowingtheimplementationin1995oftheWorldTradeOrganization’sTradeinPharmaceuticalProductsagreement(azero-for-zeroinitiative),afterwhichimportsofformulatedpharmaceuticalsandsomeingredientswerereducedtozeroandimportsoftheseproductsgrewfrom$8.6billionin1996toover$113billionin2016.ElizabethNesbitt,OfficeofIndustries,“ChangesintheU.S.PharmaceuticalImportMixundertheAgreementonTradeinPharmaceuticalProducts,”U.S.InternationalTradeCommission,ExecutiveBriefingsonTrade,August2017.35 SomehavesuggestedthattheFDAseemsmorecomfortableapprovingpharmaceuticalsproducedintheUnitedStates,sopharmaceuticalmanufacturersinU.S.FTZscanmorereadilywinFDAapprovalforU.S.distributionthanoverseasmanufacturers.
PiramalCriticalCare,Inc.
U.S.Headquarters:Bethlehem,PA
Business:Pharmaceuticalproducts
Employees:120
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countries.FinishedpharmaceuticalsmanufacturedintheFTZandthensoldintotheU.S.marketwouldenterduty-free.
TheFTZdesignationcameatatimethatPiramalwasfacedwithcompetitionfromlower-pricedimportedanesthesiaproducts,competitionitwasfindinghardtomatch.Itwasconsideringmovingproductionabroadandlayingoffabout70highlypaidmanufacturingworkers.36
TheFTZprogramsavesPiramalhundredsofthousandsofdollarsannuallyindutiesontheinputsitimports.WiththesavingsmanifestedbytheFTZprogram,PiramalwasablenotonlytostayinBethlehemandmaintainexistingproductionemployment,butincreaseemployment,modernizeitsfacility,andincreasecapacitythree-fold.37Today,thecompanyemploysabout120workers,andexportstomorethan100countriesfromLehigh.ThisU.S.economicactivitywouldhavebeenlostbutfortheFTZsavingsthatenabledPiramaltostayintheUnitedStates.
36 ColinMcEvoy,“ForeignTradeZoneDesignationSavesLehighValleyCompaniesMillions,”TheLehighValleyInsider,November18,2014,https://lehighvalley.org/foreign-trade-zone-designation-saves-lehigh-valley-companies-millions/.37 “FTZstatuslevelsplayingfieldforLehighValleycompaniesvs.rivalsabroad,”KeystoneBusinessNews,August29,2018,https://keystonebusinessnews.com/stories/510349417-ftz-status-levels-playing-field-for-lehigh-valley-companies-vs-rivals-abroad.
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UniCarriersAmericas,Rockford,Illinois(FTZ-176):FTZcostsavingsfundU.S.workertrainingUniCarriersAmericasreceivedapprovaltomanufacturerider-typeforklifttrucksinanFTZsubzoneinRockford,Illinoisin2005.KnownthenasNissanForkliftCorporation,N.A.,thecompanysoughttouseimportedcomponents,accountingforabout48percentofthefinishedforklifttruck’svalue,topaint,assembleandtestwhatithopedwouldbeupto15,000unitsayear.Dutiesonthesepartscouldreachashighas9percent,comparedtozeroforfinishedforklifttrucks.UniCarriersarguedthatFTZbenefitswouldimprovethecompany’scompetitivenessinexportmarkets.38
Itsrequestwasapprovedin2006.UniCarriersestimatesthatitsavesabout$2millionayear39thankstotheFTZsubzonebenefits–inparticular,dutysavingsandMPFbundling.Thosebenefitsoutweighthecosts,whichincludeafull-timeemployeetohandlepaperworkandfilereports,daily,withU.S.CustomsandBorderProtection.
DemandforforklifttrucksisstrongerthaneverthankstoaboomingU.S.economyandgrowthindemandfromwarehousesstockinggoodsforinternetshoppers.UniCarriershasusedsomeofthedutysavingstoexpandthecompanybyaddingspaceandemployees.FTZsavingshavehelpedtofundthetrainingofitsworkforcetooperatesophisticatedproductionnewequipment.40CompanyPresidentandCEO,JamesJ.RadousIII,notesthatwhereasmanymanufacturersarereplacingworkerswithrobots,UCAisretrainingandredeployingemployeestoworkandtrainalongsideautomation.Thecompanyhasincreaseditsautomationcapabilitiesby50percentwhiledoublingitsnumberofemployeesfromapproximately300to600overthepastfiveyears.
38 U.S.DepartmentofCommerce,Foreign-TradeZonesBoard,Foreign-TradeZone176—Rockford,Illinois,ApplicationforSubzoneStatus,NissanForkliftCorporationNorthAmericaFacilities(Fork-LiftTrucks),Marengo,Illinois,FederalRegister,June15,2005.39 RockfordAreaDevelopmentCouncil,“FTZ=$$$Savings,ForeignTradeZoneMeansSavingsMillions,”Developments,June2014,http://rockfordil.com/images/stories/PDFdocs/DevelopmentNews/RAEDC_Dev-June_2014.pdf.40 ClaireBushey,“Whenautomationdoesn’tbringlayoffs,”ChicagoBusiness,August26,2017,http://www.chicagobusiness.com/article/20170826/ISSUE01/170829905/when-automation-doesnt-bring-layoffs.
UniCarriersAmericas
U.S.Headquarters:Marengo,IL
Business:Designsandmanufacturesforklifttrucks
Employees:518inFTZ
ValueofFTZsavings:$2millionannually